Lloyd's results are not as grim as they may seem.
At first glance, Lloyd’s recently announced interim results for the six month period to the end of June 2008 make for grim reading. The insurance market announced a pre-tax profit of £949m for the six months to the 30 June 2008, but this was almost 50 per cent lower than the profit made in the first six months of the previous year. In the six months to the end of June 2007, Lloyd’s pre-tax profit was a whopping £1.8bn. So, with profits significantly down on last year, are we to assume that panic has gripped One Lime Street?
Not quite. While it is common when assessing financial results to compare performance with the previous twelve months, it should not be forgotten that Lloyd’s financial result was formidable in 2007. Indeed, despite profits falling, ratings agency A.M. Best has commended Lloyds on its latest interim results. Miles Trotter, general manager at A.M. Best said Lloyd’s profits were “well within expectations”. He added: “It was a good result – the tendency is to use the previous year as a benchmark, but last year was an exceptional year, you wouldn’t expect results as exceptional as that every year.” Lloyd’s combined ratio – which stood at 89 per cent for the first half of 2008 – also impressed analysts.
However, a further decline in profits at Lloyd’s is to be expected in the coming year. With rates decreasing in most lines of business, it would be hugely impressive if the market managed to replicate this year’s interim results in twelve months time.
But for the time being, the Lloyd’s bigwigs remain bullish. Chairman Lord Levene and chief executive officer Richard Ward have trumpeted the fact that the Central Fund is healthy, mutuality costs are down, and that 90 per cent of claims and premiums are now electronically processed. However, they have also acknowledged that there may be trouble ahead. In a joint statement, Levene and Ward warned: “The market remains in a good position to face the challenges ahead but we are all acutely aware that the external conditions in which we operate are about to test our operating structure and our resolve.”
