Lloyd's cited strong underwriting discipline and conservativeinvestment strategies as the reasons for being in the black.

Richard Ward, Lloyd's chief executive, said in an interview that"to have a profit in the conditions that we had to trade through2008 is a pretty good result. Investment income was getting trashedthroughout 2008 and yet we were able to return a positive numberfor investment--2.5 percent, ?1 billion ($1.4 billion) investmentreturn."

Standard & Poor's Ratings Services agreed. "This representsa very solid performance in a year characterized by heavycatastrophe losses and extreme volatility in global financialmarkets," S&P said in a statement.

"The headline combined ratio benefited from foreign exchangegains, a significant proportion of which can be expected toreverse, due to timing differences, during 2009," the ratingservice noted.

S&P said Lloyd's insurer financial strength rating and theoutlook on Lloyd's (Lloyd's or the Market; "A-plus" stable) isunaffected by full-year results reported by the Market for thefinancial year ended Dec. 31, 2008.

On the underwriting side, Mr. Ward said 2008 was "verychallenging as a result of major losses from catastrophes, such asIke and Gustav." Nevertheless, he said Lloyd's "still managed toreturn an underwriting result of ?1.2 billion ($1.76 billion). Ifyou put those two together, it's given an overall profit before taxof ?1.9 billion--that is a good result."

Mr. Ward said Lloyd's has managed to escape financial disasterbeing seen by some insurers by being "very conservative."

On the investment side, he said, Lloyd's has adopted, "for awhile now, a pretty conservative investment strategy, where ourassets are split, roughly, one-third in cash, one-third incorporate bonds--"AA"-rated or better--and one-third in governmentbonds. Our exposures to equities, where a lot of the problems havearisen, have not impacted us--we've had less than 5 percent inequities."

On the liability side, Mr. Ward said, while Lloyd's is "in thebusiness of taking risk, we just don't want to take too much riskin any one particular class."

He explained that when looking at financial institutions anddirectors and officers liability coverage, "we made a decision awhile ago to scale back our exposure to financial institutions."While Lloyd's has some exposure today, he added, "it's verymanageable and with business as usual."

Mr. Ward said Lloyd's has been scaling back on D&O coverageover the last few years, since Enron and WorldCom.

This, he said, is an example of the wider approach in Lloyd'smarket, "which is around risk management and risk diversification.We are in the business of taking risk, but we don't want to beoverexposed to any one class or line of business."

He added, "By insuring we are not overexposed, we will be ableto trade forward. We don't want to repeat the mistakes of the past,where we suddenly find we have enormous losses from asbestos, orfrom the World Trade Center."

Asked whether he sees American International Group or otherinsurers and reinsurers undercutting pricing, as has been said, Mr.Ward noted, "The focus for us, irrespective of what our competitorsdo, is to insure that we write the right business at the rightprice."

On the underwriting side, he emphasized that underwritingdiscipline is "absolutely key. People talk about AIG and lots ofcompetitors out there, but we need to insure that we write theright business at the right price and don't chase marketshare."

To do this, he said, Lloyd's has to be "confident enough to walkaway from business if we don't think it's appropriately priced." Inthe current environment, he added, underwriting discipline is of"paramount importance."

Regarding a trend over the past few years for Bermudians toenter the London market, he said that while he doesn't know if thetrend will continue, it is an "indication of the attractiveness ofthe Lloyd's market."

More Bermuda companies are now entering the Lloyd's market thantwo years ago, he said. "We've had the likes of Max, Flagstone,Ariel, Renaissance and Validus coming through and acquiring Lloyd'sbusiness. Whether there are more to come, or not, we'll just haveto wait and see," Mr. Ward said.

Other highlights:

o A combined ratio of 91.3 (84 in 2007), which Lloyd's saidcompares favorably with an estimated average ratio of 101 for U.S.property and casualty insurers; 102 for U.S. reinsurers; 97 forEuropean insurers and reinsurers; and 92 for Bermudian insurers andreinsurers.

o Central assets increased to ?2.07 billion ($2.98 billion),compared to 2007 at ?1.95 billion ($2.87 billion).

o Investment return of ?957 million ($1.37 billion), compared to2007 at ?2 billion ($2.9 billion).

o Profit before tax excluding currency movements on nonmonetaryitems of ?1.52 billion ($2.2 billion), compared to 2007 at ?3.84billion ($5.65 billion).