Lloyd's of London lost $4.5 billion in 2001

Losses from Sept. 11 weigh heavily on insurer

April 11, 2002|By BLOOMBERG NEWS

LONDON - Lloyd's of London has posted a loss of 3.1 billion pounds ($4.51 billion) for last year, after the terrorist attacks in the United States left the three-centuries-old insurance market with its biggest-ever bill from a disaster.

Lloyd's, founded in Edward Lloyd's coffeehouse in the 1680s, predicted yesterday that the Sept. 11 assault would cost 2 billion pounds ($2.9 billion).

This is a "torrid year," said Eamonn Flanagan, an analyst at ING Financial Markets. "Lloyd's as a whole won't make spectacular profit in 2002, though some syndicates will outperform."

The strikes, which destroyed the World Trade Center and killed more than 3,300 people, are predicted to cost insurers about $58 billion. Lloyd's reckons that price increases being imposed by insurers to recoup losses will help it post its first profit in five years.

Lloyd's estimated that its premium income rose 62 percent in the first quarter of this year. "The trend toward profitability is clear," Chief Financial Officer Andrew Moss told reporters.

The insurance market paid claims on 13 catastrophes last year, also including a terrorist attack on a fleet of Sri Lankan airplanes, the sinking of the Petrobras oil rig off the Brazilian coast and Tropical Storm Allison in the United States.

Sept. 11 claims of about $900 million have been paid. Lloyd's faces gross claims of about 5.7 billion pounds, though it said that it expects to recoup the money from reinsurance that backs the policies it sold.

About three-quarters of the companies in the FTSE 100 Index and more than 80 percent of those in the Dow Jones industrial average have policies at Lloyd's.

Lloyd's so-called central fund, which pays claims if companies run out of money, had 362 million pounds at the end of last year. The fund charges a levy of 2 percent of premiums and is projected to increase to more than $1 billion by the end of 2003.

Lloyd's reported earnings for last year on an annual basis, for the first time, as it acts to reform practices adopted during the reign of King James II. Previously, it reported earnings three years in arrears. The company said it had losses of almost 2 billion pounds in 1999 and 1.7 billion pounds in 2000.

"We do believe our record of losses is unacceptable," Chief Executive Officer Nick Prettejohn said at a news conference. "We must reform to address that and make Lloyd's more intelligible and easy to understand."

Under Prettejohn, Lloyd's has proposed to overhaul its accounting, regulation and the way investors back syndicates in a bid to attract more companies. He also said Lloyd's needs to reduce reliance on the sale of reinsurance to "remove excessive risk."

About 80 percent of the 12.3 billion pounds of capital pledged to Lloyd's to back insurance comes from companies. The remainder comes from wealthy backers known as "Names."

Lloyd's wants to have the Names convert their holdings into shares in an existing Lloyd's member company or become reinsurers by 2005. The proposals, some of which the Association of Lloyd's Names is against, will be voted on in September, Lloyd's Chairman Saxon Riley said.

While Lloyd's has incurred losses in each of the past five years, many of the companies that sell insurance in the market are still profitable because they invest the premiums.

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