NU Online News Service, Oct. 21, 3:56 p.m. EDT

Claims arising from the U.S. subprime loan and banking crisis continue to mount, but are said to remain manageable at market level for Lloyd's, according to an Aon Benfield report.

Although underlying loss activity is increasing, partly as a result of the economic downturn, so far there has not been a marked acceleration in claim trends, the report states.

Lloyd's first half pre-tax profit totaled ?628 million ($987.7 million at current exchange rate)--a decrease of ?694 million ($1.09 billion) from the prior year period--while gross premiums written remained virtually unchanged over first half 2009, totaling ?13.5 billion ($21.2 billion).

The lower result was due to a combination of factors including decreased investment yields and a softening rate environment. However, a large increase in catastrophe claims was the single biggest factor in Lloyd's profits decline, as exposure to the Chilean earthquake and Deepwater Horizon oil rig disaster resulted in net claims estimated at $1.4 billion and $300-600 million respectively.

The profit of ?628 million ($987.7 million) reported by Lloyd's for the first half of 2010 represented a solid performance in the face of more than ?1.4 billion ($2.2 billion) of major loss claims, Aon Benfield said.

The full-year result remains heavily dependent on catastrophe experience in the remainder of 2010.

Lloyd's capital position is strong, says the report, noting that funds at Lloyd's and mutually-held central assets for solvency purposes are both at all time highs. Risk-based capital requirements have been increased, partly to reflect weakening pricing and low interest rates, a trend which is expected to continue into 2011.

Meanwhile, the organization continues to be proactive in its preparations for Solvency II, the new European regulatory regime that is due to be implemented in 2013. Lloyd's management forecasts that overall regulatory capital requirements will increase by 5-10 percent under Solvency II, provided the market's internal model is approved by the U.K. regulator.

Mike Van Slooten, head of Aon Benfield's International Research team, said in the report, "Catastrophe claims are a fact of life at Lloyd's and allow the market to reinforce its claims-paying credentials. More importantly, the underlying underwriting performance remains resilient, which is evidence of the good discipline instilled by the Franchise Performance Directorate."

New capital continues to be attracted to Lloyd's, according to a summary of the report, which noted that a long line of applicants is currently seeking entry to the market, including a number of brokers, but that it will be difficult for any organization to navigate the scrutiny of the Franchise Board in the current market environment.

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