Lloyd's says its 2010 before-tax profits dropped nearly 42 percent to £2.19 billion ($3.44 billion at current exchange rate) compared to £3.87 billion ($5.9 billion) in 2009.

Richard Ward, Lloyd's CEO, says the results are solid “in a year with a slightly higher than average number of natural catastrophes. And 2011 has already been an extraordinary year of tragic natural disasters.”

Luke Savage, director of finance, risk management and operations at Lloyd's, tells NU that while the profit is down, “the balance sheet is as strong as it's ever been—it's a record high of £19 billion ($30.5 billion) of net resources.”

He adds that the Lloyd's market is underpinned by the Central Fund, similar to a mutual fund, which is at a “record high of just under £3 billion ($4.8 billion).”

While 2011 has gotten off to a tough start, he adds, “I would say that we're as well positioned as we ever have been to be able to deal with that and make sure the policyholders get paid in a timely fashion.”

Looking at 2009, “the global reinsurance industry saw very little in the way of catastrophes,” he says. “By marked contrast, in 2010 we had the Chilean earthquake. We had the Deepwater Horizon rig loss. We had flooding in Australia and an earthquake in New Zealand—and the list goes on.” He notes that these events added about 10 points to the combined ratio year-over-year, which accounts for most of the drop.

“That says we're in the business of writing catastrophes, and we have quiet years and we have busy years. And $3.4 billion is still a very reasonable result, we think,” Mr. Savage says.

Since year-end, he points out there have been more Australian floods, another New Zealand earthquake and the major tragedy in Japan.

Looking at the Japan earthquake, he says, industry loss estimates for New Zealand and Japan are both broad ranges. “But depending on where in those ranges you pick, arguably they can probably add up to a loss in the first three months of this year on a par with the entire cat losses for last year. So not a good start for the year, and at the end of the day, our results for 2011 will be driven largely by what happens between now and year-end.”

He says if there are major U.S. hurricanes, “we'll be footing part of that bill. Let's hope you don't have a California quake. If you did, we would be a major reinsurer of that.”

As for Japan, Mr. Savage says, the Lloyd's market has a portfolio of what it calls “realistic disaster scenarios.” He says each of the businesses at Lloyd's models its losses for these scenarios.

“We do, indeed, have a Japanese earthquake as one of those scenarios—and that's about a $64 billion loss centered on Tokyo.” Lloyd's biggest exposure is a direct hit on Tokyo, as “it's where we insure a lot of commercial property.”

While the actual earthquake in Japan, in human terms, has been a real tragedy, from a loss perspective, given that the losses are more in the Northeast part of the country, “we'd expect our losses to be well within our modeled figures,” he notes.

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