A major rating service predicts Lloyd's of London will see a 5 percent profit in 2007, provided it is not subject to large claims experience.
In a report issued yesterday, Moody's Rating Service out of London said the market has the potential to realize a profit of 5 percent on capacity in 2007, calling it a "return to acceptable profit."
For 2005, Lloyd's reported a loss of $181 million for the year after a huge claims hit from Hurricanes Katrina, Rita and Wilma.
Moody's cautioned that profitability will differ by class and by syndicate subject to pressures to diversify in noncatastrophe lines of business. It further warned that a major catastrophe could have significant impact. For example, under the scenario for a Los Angeles earthquake, disaster losses could amount to 9 percent of net capacity.
Liquidity remains good at Lloyd's after the 2005 hurricanes, Moody's continued, but U.S. requirements that foreign insurers post 100 percent of their gross loss into the U.S. Credit for Reinsurance Trust Fund is tying up capital.
In a speech before a meeting of the Northeast Hurricane Conference, sponsored by the Insurance Information Institute in New York yesterday, Wendy Baker, president of Lloyd's America, was critical of the treatment. She said the Lloyd's market, which has shown its credibility repeatedly over the years, should not be subject to a double standard.
"About a third of the industry's $60 billion loss from last fall's hurricanes was paid by foreign insurers, including Lloyd's," she said. "It is important to note because foreign reinsurers are often treated like second-class citizens."
Assuming a normal loss year, Moody's believes Lloyd's will see a 10 percent return on capacity, with profits totaling ?2.2 billion (U.S. $4.07 billion at current exchange rate) for 2004 to 2006 years of accounts.
For its part, Lloyd's remains committed to New York and the rest of the region, said Ms. Baker. "Unlike some domestic insurers, [Lloyd's] is not backing away from our U.S. clients. We remain fully committed to this region and more broadly to this country, our largest market–accounting for over a third of our global business, or more than $9 billion in annual premiums."
She added that Lloyd's has modeled, and prepared, for a $65 billion loss from a hurricane hitting New York and a $100 billion loss from a hurricane hitting Miami.
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