Lloyd's weathers disasters

LLOYD'S of London took the City by surprise today by posting underlying profits of almost £1.4bn for 2004, despite the worst-ever year for losses in the insurance industry from natural catastrophes.

A better-than-expected investment return over the second half and a sharp drop in claims in the final three months of the year helped the London market top forecasts of about £1.2bn.

The result is sharply down on the £1.9bn seen last year but up more than 60% on 2002.

Lloyd's chairman Lord Levene said: 'These results, achieved despite significant losses from natural catastrophes, are testimony to the continually improving quality and strength of the Lloyd's market.

'A few years ago, such a performance would have been unthinkable.'

Levene and chief executive Nick Prettejohn have introduced sweeping reforms into Lloyd's in a bid to move the market on from the early 1990s when many of the high-rolling Names that used to provide the bulk of underwriting capital were forced to the brink of bankruptcy.

Lloyd's suffered net claims of £1.2bn from autumn's devastating US hurricanes and a £100m bill from the Asian tsunami. Underwriting profit tumbled 66% to just £370m. The total natural catastrophe bill last year for the insurance industry as a whole was $49bn (£26bn).

But the return on Lloyd's mammoth investment fund rose by 14% to £1bn, benefiting from rising interest rates, improving stock market conditions and the increasing amount of money available to invest.

The central fund that underpins Lloyd's has been growing as cash from previous bumper years pours into the coffers of listed insurers such as Amlin, Brit and Beazley. Lloyd's also boosted its balance sheet through a first foray into the capital market last October, raising £500m in surbordinated debt.

Prettejohn said the performance compared well with Lloyd's competitors around the world but called on the underwriters to remain 'vigilant' as rates begin to soften.

Lloyd's has suffered in previous downturns from companies slashing insurance premiums in a bid for market share, and in the event exposing themselves to far more risk.

Prettejohn said: 'There will be no let-up in our determination to improve the efficiency of doing business at Lloyd's and in our focus on the quality of business rather than the volume.'