Coming off a record year for profits, the chief executive of Lloyd’s of London said Wednesday that the storied insurance group is participating in a study looking at creating a similar market in New York.
Lloyd’s said its annual pretax profit soared last year to a record £3.9 billion, or about $5.8 billion, more than double the 2008 profit of £1.9 billion. Results were aided by relatively light damage from Atlantic hurricanes and better investment performance.
But Richard Ward, Lloyd’s chief executive, warned in an interview that it would be hard for Lloyd’s to maintain its profitability at last year’s level.
And Lloyd’s is facing a possible challenge from Wall Street, after Governor David A. Paterson of New York in January announced that his administration was working to create an international insurance exchange modeled on Lloyd’s. New York failed in an earlier attempt to create such an exchange nearly three decades ago.
Mr. Ward said that Lloyd’s was participating in a working group on setting up such a market with the New York insurance commissioner, James J. Wrynn, and that the group was to issue its report in September.
“It’s a challenging time to be setting up an insurance entity, considering the downward pressure on rates and oversupply in the market,” Mr. Ward said, adding that it was “far too early” to say if Lloyds would participate in the ultimate project, whatever form it might take.
For now, Mr. Ward said, “Lloyds is at the center of the insurance market and London is the preeminent city for insurance. There’s no other place like it.”
“The strength of London,” he added, “is that we have the cluster effect of 50,000 people working in insurance around the Lloyd’s building.”
Owned by its members and unlisted, Lloyd’s is actually a marketplace rather than a company, describing itself as “a society of members which underwrite insurance (each for their own account) as members of syndicates on line pay day loans.”
Mr. Ward noted that Lloyd’s generated an investment return of £1.8 billion in 2009, but was unlikely to repeat that performance in the current climate. Further, results were bolstered by the release of reserves from prior years, he said, something that cannot be counted on in 2010.
But the most important factor expected to affect profitability, Mr. Ward said, is that 2010 is unlikely to be as disaster-free, relatively speaking, as 2009, which had the lowest number of number of named Atlantic hurricanes since 1996.
“We’ve already had the Haitian and Chilean earthquakes already this year,” he said, “and hurricane season hasn’t even started.”
The insurance industry will be only minimally affected by the Haitian quake, he said, because despite the scale of disaster, there is little insurance coverage on the poor island. The Chilean quake will ultimately cost the industry $6 billion to $10 billion, he estimated, of which “we’ll pick up a small amount.”
Lloyd’s noted in a statement that there were “few, if any, significant failures among insurance businesses in the year,” and said those insurers that were hurt by the financial crisis “saw their capital levels largely replenished as confidence was restored and stock market values increased.”
The insurer said its combined ratio, which sets the cost of claims and expenses against net premiums, was 86.1 percent in 2009, down from 91.3 percent in 2008. A ratio of 100 percent represents break even, while a ratio lower than 100 percent shows an underwriting profit.
Lloyd's of London to Join Study for Another Insurance Market in New York
