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Thursday, January 1, 2009
Interim results to June 2008

Lloyd’s says it made an interim profit before tax of £949 million (US$1,889 million) for the six-month period ending 30th June 2008. The result reflects a softening in market conditions and a rise in worsening claims. Its Chief Executive Richard Ward comments that, “The market remains in a good position to face the challenges ahead even though the external conditions in which we operate are about to test our structure and resolve.”
Even so, Lloyd’s expects to have the capacity to write approximately £15.95 billion of business in calendar 2008. It occupies fifth place in terms of global reinsurance premium income, and is the second largest surplus lines insurer in the US. This year 75 syndicates are underwriting insurance at Lloyd's, covering all classes of business from more than 200 countries and territories worldwide
Comments Lloyd’s Chairman Lord Levene, “We have reported a strong performance in extremely challenging circumstances. The result reported for the first half comes as no surprise with profits heavily influenced by falling investment income and increased cost of claims, while the second half will remain subject to the incidences of natural catastrophes.”
A conservative investment mix has resulted in a positive return of approximately 1%, which outperformed many peers, but showed the impact of the extreme volatility in the capital markets, with both equity and bond holding adversely affected. Investments returned £346 million (US$689 million).
The combined ratio of 89% continues to compare well with our peers who recorded an estimated average of 99% for US property & casualty insurers (i); 98% for US reinsurers (ii); 86% for Bermuda (iii); and 96% for European insurers and reinsurers. A combined ratio is a measure of an insurer’s underwriting profitability based on the ratio of net incurred claims plus net operating expenses to net earned premiums. A combined ratio of 100% is break even. A ratio of over 100% is a loss; less than 100% is a profit.
Based on a number of factors, future results could vary materially from those currently anticipated, Lloyd’s warns. These factors include:
• Rates, terms and conditions of policies may vary from those anticipated;
• Actual claims paid and the timing of such payments may vary from estimated claims and timings of payments, taking into account the preliminary nature of such estimates;
• Claims and loss activity may be greater or more severe than anticipated, including as a result of natural or man-made catastrophic events;
• Competition on the basis of pricing, capacity, coverage terms or other factors may be greater than anticipated;
• Reinsurance placed with third parties may not be fully recoverable, or may not be paid on a timely basis, or such reinsurance from creditworthy reinsurers may not be available or may not be available on commercially attractive terms;
• Developments in the financial and capital markets may adversely affect investments of capital and premiums, or the availability of equity capital or debt;
• Changes in legal, regulatory, tax or accounting environments in relevant countries may adversely affect (i) Lloyd’s ability to offer its products or attract capital, (ii) claims experience, (iii) financial return, or (iv) competitiveness; and
• Economic contraction or other changes in general economic conditions could adversely affect (i) the market for insurance generally or for certain products offered by Lloyd’s, or (ii) other factors relevant to Lloyd’s performance.

Its assets include those of the Central Fund and the other assets of the Corporation. In aggregate, the value of Lloyd's central assets, excluding the callable layer and the liability in respect of the subordinated debt, amounted to £1,936m (US$3,853m) at June 2008, the strongest ever.
Balance due to/from Members and Funds at Lloyd’s represent the aggregate of each member’s resources. These resources operate on a several basis and are only available to meet each member’s share of claims. Central Assets are available at Council’s discretion to meet the liabilities of any member on a mutual basis.

Copyright © Insurance Times and Investments® Vol:22.1 1st January, 2009
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