Lloyd’s reinsurance book covers a range of business classes and types, both short and long tail, and uses a variety of placement types including facultative, or individual risk placements; proportional treaties; and non–proportional treaties, such as excess of loss placements. The reinsurance book has benefited from a significant tightening in the terms offered, particularly in the levels of retention accepted by cedants.

Tighter terms, a stronger premium base

The main benefit of this is that it reduces the erosion of the premium base by large numbers of relatively small individual claims. These not only add up in monetary terms, but their adjusting, reserving and settlement are also a drain on management resources, another significant cost to the business. Individual large claims events only rarely cause serious financial difficulties for a Lloyd’s syndicate (although 9/11 certainly tested this); attritional claims are by far the largest threat to overall profitability, hence the importance of appropriate levels of deductible and tight policy forms.

Strong trading, hit by hurricanes

The results for the 2004 calendar year account, are generated from the premiums written in 2004, 2003 and earlier years as premiums earned, and losses paid, flow through the profit and loss account. The strong trading conditions in the period following 9/11 continue to influence the results announced in these accounts but these have been counterbalanced by the impact of the catastrophe losses during 2004.

Naturally, the hurricanes in the Caribbean and the USA made an impact on the direct accounts of property, marine and energy; but they also fed through to the relevant reinsurance accounts, where Lloyd’s has provided protection both to other Lloyd’s underwriters and to insurers operating around the world. Much of the impact from these storm losses fell on the property catastrophe accounts with the result that at renewal in 2005, prices have risen as reinsurers seek to recover some of the losses incurred. Against this current trading performance we have seen a deterioration emerging from reserves established in the casualty reinsurance accounts. In the circumstances, the calendar year combined ratio of 94.6% for the reinsurance book is an excellent result.