Lloyd's cited strong underwriting discipline and conservative investment 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 through 2008 is a pretty good result. Investment income was getting trashed throughout 2008 and yet we were able to return a positive number for investment--2.5 percent, ?1 billion ($1.4 billion) investment return."

Standard & Poor's Ratings Services agreed. "This represents a very solid performance in a year characterized by heavy catastrophe losses and extreme volatility in global financial markets," S&P said in a statement.

"The headline combined ratio benefited from foreign exchange gains, a significant proportion of which can be expected to reverse, due to timing differences, during 2009," the rating service noted.

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

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

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

On the investment side, he said, Lloyd's has adopted, "for a while now, a pretty conservative investment strategy, where our assets are split, roughly, one-third in cash, one-third in corporate bonds--"AA"-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 in equities."

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

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

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

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

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

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

On the underwriting side, he emphasized that underwriting discipline is "absolutely key. People talk about AIG and lots of competitors out there, but we need to insure that we write the right business at the right price and don't chase market share."

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

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

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

Other highlights:

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

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 to 2007 at ?2 billion ($2.9 billion).

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

Special Reports /

Lloyd's '08 Profits Drop To $2.7 Billion From $5.66 Billion

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