Lloyd's puts large amount of profit into reserves, but still makes £1.9bn
Lloyd's has put about a quarter of its 2003 profit in its reserves to cover future liabilities in its US casualty business. This means the total profit for Lloyd's in 2003 was £2.4bn.Around £545m in additional reserving took the final reported pre-tax profit down to £1.9bn. The profit was a massive 127% rise from 2002 and its combined ratio of 90.7% outperforms the majority of US and European insurers.Chief executive Nick Prettejohn said the underwriting climate had been extremely good and praised the franchise board for "enforcing underwriting for profit and being prepared to make tough decisions".One of those tough decisions was forcing GoshawK to put Syndicate 102 into run-off. It is understood GoshawK's exposure hit the central fund for £90m. The fund now stands at £711m, up 49%, from 2002 while the cost of running Lloyd's is down 20% to £70m, making the final central assets total £781m, up 39% from last year.Prettejohn admitted that the casualty combined ratio of 110.4% was "not good, but it did include 15% of reserve strengthening". Robert Miller of the Association of Lloyd's Members said that it was "encouraging that the 2001 year of account loss of £2.3bn had not deteriorated further." Outgoing finance director Andrew Moss said Lloyd's was not worried whether the market relied on temporary or permanent capital, "as long as the capital was backing good, profitable business."Prettejohn said that the market had benefited from low catastrophe losses, where 2003 saw only £142m claims paid versus the £2.6bn in 2001 after 9/11.Lord Levene said: "We know that one swallow does not make a summer. This has been an exceptional year but we are asking the market to be cautious."
Lloyd's: market reactionMazars partner Ian Sparshott said the results were not totally unexpected considering the current rating environment, but £1.9bn of pre-tax profit was a good result for the market.Talbot Underwriting chief executive and former Limit managing director Michael Carpenter said: "These results reflect hard market conditions and Lloyd's high reputation in world markets. Lloyd's capital provider Hampden Agencies director John Francis said : "These results show that Lloyd's is in better shape than it has been for more than 20 years. Investment in a Lloyd's syndicate is a compelling investment in a year of low investment returns."Association of Lloyd's Members chairman Michael Deeny said he thought the 2003 results were excellent. "They demonstrate that Lloyd's is now leading the world, both in terms of profitability and the way it does business.Fitch Ratings said Lloyd's 2003 financial results were broadly in line with the agency's expectations and it expected Lloyd's to post excellent results for 2004, subject to normal catastrophe loss experience.Markel International finance director Andrew Davies said: "These are great results. The reserving issues on 2001 and the exposure to US casualty seem to be addressed. "For the rest of 2003 and 2004 there should be caution. People have been aggressive for so long we are seeing that the underwriting curve is dipping - and quicker than we think. If a broker says the rate is dropping, the rate is probably decreasing by double the figure quoted. PI rates are coming down but we must stay firm. This is only one year and we have to make up for the previous 15 years.