Lloyd's makes pounds 1bn profit for second year

Lloyd's of London yesterday announced a second consecutive pounds 1bn profit for its 1994 year of account, confirming the market's recovery from the disastrous pounds 8bn of losses run up in the five years to 1992. The insurance market warned, however, that tough trading would mean declining returns in the following three years.

Sir David Rowland, chairman of Lloyd's, said the result reflected generally good market conditions, better pricing and a year that contained only a limited number of catastrophes.

He added: "It is particularly encouraging that, despite the adverse effects of exchange rates of some pounds 100m, this result compares favourably with the profit projection made at this time last year. I believe that this improved forecasting record is an indication of the increased professionalism of those who work in today's market."

The 1994 profit of pounds 1.01bn represented a return of 17.8 per cent on net premiums of pounds 5.69bn and compared with a profit for the 1993 year of account of pounds 1.08bn. Lloyd's announces its results three years in arrears to allow for claims to be met and accounted for fully.

Despite breaching the pounds 1bn barrier for the second year running, Sir David warned that profit projections from Lloyd's underwriting syndicates were pointing to a profit of just pounds 913m for 1995 and pounds 600m last year. He expected the 1997 result to be even lower thanks to a continuation of overcapacity and competitive pressure on premiums.

Sir David also pointed to a marked strengthening in Lloyd's financial strength with the society's total assets worth 184 per cent of its liabilities. At the end of 1995, before the reconstruction and renewal programme that effectively saved the market took effect, the comparable percentage was 138 per cent.

Sir David said Lloyd's had just completed consultation on its proposals for further strengthening the society's chain of security, the systems put in place to underpin its underwriting. He said firm proposals would be put before next week's annual meeting.

He also confirmed Lloyd's desire to introduce an element of external accountability to the market and said he was keen that Lloyd's should not be left out of the Government's proposed shake-up of City regulation.

He said he saw the beefed-up Securities and Investment Board as the natural regulator for Lloyd's.

Marine insurance increased profits to pounds 565m (pounds 526m) despite a fall in net premiums as rates continued to move up during the year. There were few catastrophes and the majority of syndicates enjoyed good profits. The return on premiums was 44 per cent.

Non-marine, the biggest insurance sector at Lloyd's, saw a fall in profits from pounds 881m to pounds 837m as rate increases in the UK were offset by continuing soft conditions in the US. The Northridge earthquake was one of two big catastrophes.

Motor insurance began what is expected to be a continuing decline into the current year as competition from direct insurers such as Direct Line put increasing pressure on premiums. Profits fell from pounds 175m to pounds 117m and motor syndicates at Lloyd's are forecasting losses in 1995 and 1996.

Aviation insurance turned in a pounds 148m profit (pounds 138m) as higher rates were offset by a number of airline and aerospace losses.