Lloyd's to hit $23 billion in 2010
Lloyd’s is set to achieve a profit of up to $23 billion this year—an increase of as much as 27 percent from 2009 if estimates are correct.
A significant portion of the increase comes as a direct result of the weakness of the British pound against stronger currencies.
“As much as 40 percent of the increase is due to changes in the foreign exchange rate for the British pound against the US dollar,” said Chris Klein, London-based global head of business intelligence at Guy Carpenter & Co. L.L.C. “Lloyd’s 2010 capacity is based on an exchange rate of $1.50 to £1, compared with $1.99 to £1 in 2009,” he added.
However, not all of the increase is down to exchange rates. “Sixty percent of additional capacity reflects new entrants to the market, organic growth and expected premium rate increases,” he added.
According to Klein, Lloyd’s has doubled its capacity since 2001. He says: “The market has enjoyed relatively high financial strength ratings and has posted accumulated profits of £14.7 billion ($23.46 billion) from 2001 through the first half of 2009.”
Moody’s Analytics, a unit of Moody’s Investors Service, accurately predicted that Lloyd’s 2010 capacity would rise 27 percent to almost £22.8 billion ($36.38 billion).
“Twenty percentage points of the increase reflect changes in foreign exchange rates, while just one percentage point—£165 million ($263.3 million)—relates to four new syndicates due to start underwriting in 2010,” said Robert Smith, director of insurance at Moody’s Analytics in London.
“The remaining increase in capacity reflects expectations of new business and rate increases in certain lines, such as marine and aviation,” he added.
“Lloyd’s capacity figure indicates what the market could, rather than will, underwrite,” said Smith. “And syndicates usually factor in a margin above what they expect to write in case rates increase after a large loss,” he added.
For the first year in Lloyd’s history, four syndicates have a capacity of £1 billion or more. Catlin—the largest Lloyd’s syndicate by some distance—increased aggregate capacity by 32 percent, with Amlin, Hiscox and QBE all crossing the £1 billion milestone.
“The increase in capacity is mainly down to the changes in exchange rates and new business coming to Lloyd’s. But there could be issues on the margins, especially among the weaker syndicates, where there is concern over (underwriting) controls and what is being written,” Smith said.
