Insurance giant Lloyd's nets $1.3 billion in 2002, its first profit in 6 years

Rebound driven by rise in premiums, 36% drop in claims payments


Lloyd's of London, the international insurance market, reported yesterday its first profit in six years, reflecting a surge in insurance prices around the world since the Sept. 11, 2001, attacks and a sharp decline in the organization's payments for claims.

Lloyd's said its earnings for 2002 rose to $1.34 billion, from a record loss the previous year of $4.5 billion. That loss came largely as a result of the attack on New York's World Trade Center.

Revenue from premiums rose 8 percent, to $17.17 billion, while claims costs fell 36 percent, to $10.7 billion.

The insurance organization, which began in a coffeehouse near the London docks more than 300 years ago, is in the midst of a reorganization aimed at greater efficiency as competition has been increasing.

"This tells us they are on the road to recovery," said Mark Hewlett, a managing director at Moody's Investors Services who follows Lloyd's and European insurers.

The reorganization, however, is in the early stages, he said, and "if they don't get the discipline and controls right, they could slip back."

Lloyd's results for 2002 contrast markedly with those of rivals in Europe and the United States in the commercial insurance business.

All the insurers have been benefiting from price increases. But the earnings of the other insurers, particularly in Europe, have suffered from big declines in their investments. They also have been paying out more in claims than expected, partly because of floods in Central Europe last spring, but also because of underpricing and lenient terms.

Lloyd's suffered less in the market downturn because it traditionally invests mostly in bonds and very little in stocks.

In many ways, analysts said, Lloyd's is a bellwether for the industry. When the stock markets begin to improve and as the other companies continue to impose greater deductibles and other restrictions, as Lloyd's has been doing, "the others are sure to follow with similar improvements," Hewlett said.

Lloyd's has built a gilt-edge reputation by taking on risks that other insurers shied from. But other insurers, with the aid of mathematical models, have been willing to take on more risk lately. At the same time, analysts said, part of the explanation for Lloyd's improved results is that it is turning away some of the riskiest business.

"If the price is right and the exposure is quantifiable," Hewlett said, "Lloyd's is still happy to write it. But if the price isn't quite right and you're getting a lot of other business, you're going to be taking that before you look at the stuff that's a little more on the fringe."

Lloyd's nearly collapsed in the early 1990s as claims poured in for lawsuits over asbestos exposure and disasters including the Exxon Valdez oil spill of 1989 and Hurricane Andrew in 1992. Lloyd's reported losses of about $8 billion at the World Trade Center, more than any other insurer, but said it expected to recoup two-thirds of that from other insurers.

Payments from other insurers are not always certain, however. Lloyd's demonstrated that yesterday when it disclosed that it was forcing into arbitration six big insurers that have refused to pay claims related to the organization's central fund, its reserve against extraordinary losses.

As did other insurers, Lloyd's reported increasing its reserves as claims from previous years appeared to be moving higher than expected. But, unlike the others, Lloyd's protected itself from spiraling asbestos claims by walling off that business in a separate company in 1993.

Analysts said Lloyd's increase in reserves by about $1 billion was mainly to cover a jump in claims related to lawsuits against corporate executives in the wake of the dot-com meltdown and the scandals at companies such as Enron Corp. and WorldCom Inc.

In its reorganization, Lloyd's is imposing greater controls on the operations of the companies under its umbrella. It is encouraging other corporations to finance the insurance at Lloyd's in contrast to the thousands of individuals, called "names," who traditionally had supplied the bulk of its capital.

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