Profits at Lloyd's last year plunged to $2.7 billion–less thanhalf of the $5.66 billion reported for 2007–but its chief executivewas counting his blessings, contending that the market's positivebottom line was “a pretty good result” given the state of thefinancial markets and overall economy.

Lloyd's cited strong underwriting discipline and conservativeinvestment strategies as the reasons for remaining in the blackduring a sharp downturn on both Wall Street and Main Street.

Indeed, Richard Ward, Lloyd's chief executive officer, toldNational Underwriter that “to have a profit in theconditions that we had to trade through 2008 is a pretty goodresult. Investment income was getting trashed throughout 2008, andyet we were able to return a positive number for investment–a 2.5percent investment return,” totaling ?1 billion ($1.4 billion atcurrent exchange rates).

While the combined ratio for Lloyd's was up 7.3 points from2007's ratio of 84, the market remained profitable from aninsurance standpoint with a combined ratio of 91.3–well below thefigures posted by the U.S. and European markets.

Lloyd's noted an estimated average ratio of 101 for U.S.property-casualty insurers; 102 for U.S. reinsurers; 97 forEuropean insurers and reinsurers; and 92 for Bermuda insurers andreinsurers.

Standard & Poor's Ratings Services agreed with Mr. Ward'spositive assessment. “This represents a very solid performance in ayear characterized by heavy catastrophe losses and extremevolatility in global financial markets,” S&P said in astatement.

The rating agency added that Lloyd's results “benefited fromforeign exchange gains,” although S&P warned that “asignificant proportion…can be expected to reverse, due to timingdifferences, during 2009.”

S&P said its financial strength rating for Lloyd's(“A-plus”) and its outlook for the market (“Stable”) are unaffectedby full-year results reported for the financial year ended Dec. 31,2008.

On the underwriting side, Mr. Ward conceded that 2008 was “verychallenging as a result of major losses from catastrophes, such as[Hurricanes] Ike and Gustav.”

Nevertheless, he said Lloyd's “still managed to return anunderwriting result of ?1.2 billion ($1.76 billion).” When combinedwith the market's investment return, the overall profit beforetaxes was ?1.9 billion ($2.76 billion). “That is a good result,” heconcluded.

Mr. Ward said Lloyd's has managed to escape the financialdisaster threatening some individual insurers by being “veryconservative.”

On the investment side, he said Lloyd's has adopted “for awhilenow, a pretty conservative investment strategy, where our assetsare split, roughly, one-third in cash, one-third in corporatebonds–'double-A'-rated or better–and one-third in government bonds.Our exposures to equities, where a lot of the problems have arisen,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–two heavily exposed linesfollowing the subprime mortgage crisis–”we made a decision awhileago to scale back our exposure to financial institutions.” WhileLloyd's has some exposure today, he added, “it's very manageableand with business as usual.”

Mr. Ward said Lloyd's has been scaling back on D&O coverageover the last few years, since claims arose from the Enron andWorldCom debacles.

This, he said, is an example of the wider approach in theLloyd's market, “which is centered around risk management and riskdiversification. We are in the business of taking risk, but wedon't want to be overexposed to any one class or line ofbusiness.”

He added that “by insuring we are not overexposed, we will beable to trade forward. We don't want to repeat the mistakes of thepast, where we suddenly find we have enormous losses from asbestos,or from the World Trade Center.”

Asked whether he sees American International Group or otherinsurers and reinsurers recklessly undercutting pricing, as othersin the market have suggested, Mr. Ward noted that “the focus forus, irrespective of what our competitors do, is to insure that wewrite the right business at the right price.”

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, with investment return uncertainat best, underwriting discipline is of “paramount importance.”

Regarding a move observed over the past few years for Bermudiansto enter the London market, he said that while he doesn't know ifthe trend will continue, it is an “indication of the attractivenessof the Lloyd's market.” More Bermuda companies are now entering theLloyd's market than two years ago, he said.

“We've had the likes of Max, Flagstone, Ariel, Renaissance andValidus coming through and acquiring Lloyd's business. Whetherthere are more to come, or not, we'll just have to wait and see,”Mr. Ward said.