Lloyd's move to one-year accounting is good, but good underwriting is better, says Yvette Essen
When Lloyd's announced it was completely changing its accounting structure last week, the move was intended to symbolise a new era of profitability and success.
Earlier this year the Chairman's Strategy Group (CSG) and management consultant Bain & Co recommended the 314-year-old market take radical action or lose out to Bermuda and other strengthening markets.
One of the proposals was that Lloyd's should use the General Accepted Accounting Principles (GAAP), rather than reporting its results three years in arrears. In theory, this will bring greater transparency.
By moving to annual accounting, Lloyd's has taken the first step of change and has begun to implement the CSG's recommendations. It is also attempting to put the past behind it by sweeping all the losses of the World Trade Centre tragedy into 2001.
Lloyd's now effectively starts this year with a clean balance sheet, just in time for the upswing in the cycle. It is attempting to remodel itself to fight off the threat of other overseas markets, like Bermuda.
By changing and predicting profits for the 2002 underwriting year of account, the market is trying to rebrand itself. Lloyd's, in its shiny building, has been tarnished by five consecutive years of losses so must now polish up its act.
But moving towards a more efficient accounting system will not make a difference if the market continues to produce losses year after year. This may be the beginning of the CSG and Bain proposals, but a move back to basics is what is really required.
Even if Lloyd's puts into practice all of the suggestions by changing its capital base, becoming a franchisor or ending the annual venture it cannot be saved if it continues to trade unprofitably.
It will witness a significant and long lasting period of profitability only if it returns to good underwriting.