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LLOYD’S UPDATE - 2009 RESULTS & 2010 CAPACITY

Capital & Capacity

Lloyd’s pro forma capital increased by 28% in 2009, rising to GBP18.2bn. Market estimates suggest that 1 January 2010 stamp capacity increased by 30%, largely due to the need to allow for the significant foreign exchange movements in 2008/9. Gross premiums written increased by 22%, or 8% in local currency terms, to GBP22bn. Reinsurance premiums accounted for 36% of the total, at GBP8bn. Pro forma pre-tax profits doubled to GBP3.9bn, reflecting in part a benign year for natural catastrophes and an 85% increase in the investment return.

Lloyd’s continues to pursue its stated ambition to be the market of choice, as reiterated in its Strategic Review for 2010-2012 published in February 2010. During 2009, Lloyd’s resolved the Equitas deal and saw its ratings affirmed by A.M. Best, Standard & Poor’s and Fitch.

As at Lloyd’s, 2009 gross written premium growth for the listed Integrated Lloyd’s Vehicles (ILVs) was, in general, assisted by foreign currency movements. The ILVs also benefited from improved rates on catastrophe exposed business lines, a relatively benign claims environment and improved investment returns, although this was partly offset by the negative impact of foreign exchange translation of non monetary liabilities. Shareholders’ funds for the nine listed ILVs increased by 24%, mainly reflecting capital raising by a number of the companies in late 2008 and early 2009.

Both Lloyd’s and a number of the ILVs remain cautious on the outlook for pricing in 2010, particularly given the replenishment of capital levels in the (re)insurance industry. The emphasis was on maintaining underwriting discipline until events result in a change in the pricing environment. To date, it appears that catastrophe losses announced in the first quarter of 2010 are unlikely to result in such a change.

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