John Jackson says there is a mood of optimism at Lloyd's as the market confounds its critics

How times have changed. Last year saw the worst active Atlantic storm season ever. Hurricanes Katrina, Rita and Wilma were three of the 10 largest storms in US history. But the gloom and doom merchants have not this time predicted the imminent downfall of the Lloyd's market.

That would not have been the case a few years ago - indeed the harshest criticism this year has been that if Lloyd's in 2005 had improved its efficiency by one percent it would have been in profit.

As it was, it made a £103m loss, small beer in a year which was the worst on record for natural disasters.

But losses from those disasters were contained largely because of its risk modelling and risk management arrangements.

Little wonder that the main rating agencies were happy to reaffirm Lloyd's as an A-rated insurance market.

Not least of the improvements at Lloyd's has been the work of the franchise performance directorate in tackling the professionalism of underwriting.

Far from frightening off investors, Lloyd's has, for the current year of account, pulled in an extra 7% of capacity, able to write £14.8bn of business.

With net claims of £3.3bn, there was a negligible impact on the last port of call on funds - the Central Fund.

With all the fuss about the failure of Kinnect, the abandoned electronic trading platform, some of the gloss has been rubbed off the achievements at Lloyd's. Moreover, the combined ratio was 111.8% as against a profitable 96.6% in 2004, but that is a creditable figure in all the circumstances.

But problems remain. Julian James, director of worldwide markets at Lloyd's, has admitted that, with regard to the LMP slip, although it is 96% compliant, only 44% are totally correct.

Trading forward this year, there is quiet optimism at One Lime Street that profitability will return.

Perhaps it is only fitting that 2006 should be a good year for the market - the 100th anniversary of the San Francisco earthquake when legendary underwriter Cuthbert Heath made his famous remark: "Pay all our policyholders in full irrespective of the terms of their policies."

Nevertheless the market must not become complacent - a point made by Lloyd's chairman Lord Levene - when he commented that they must not fall into the trap of thinking 2005 was a freak year which could never happen again.

With a three-year plan in place to ensure that Lloyd's improves its competitive position and new markets opening up in China, where the go-ahead has been given for an on-shore reinsurance operation, there is rightly a mood of optimism among underwriters and brokers in the world's oldest insurance market. IT