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Society of Lloyd's Interim Management Statement Q1 2009

Highlights

  • Excess of central assets over solvency shortfalls of £2,446m (31 December 2008: £2,475m).
  • During the period there have been no events that have resulted in any material changes to our expectations for the full year.

The Society of Lloyd’s is today publishing its Interim Management Statement for the three month period to 31 March 2009. This statement describes the unaudited consolidated financial position of the Society itself, its subsidiaries and the Central Fund and does not include results of the syndicates operating in the Lloyd’s Market.

Operating Review

Strategy

The Three-Year Plan 2009 – 2011 sets out the strategy to deliver Lloyd’s vision to be the platform of choice for insurance and reinsurance buyers and sellers to access and trade specialist property and casualty risks. The main priorities continue to be to work with managing agents to help manage the cycle; improve market access; and create an efficient, cost effective operating environment.

Financial Review

Excess of central assets over solvency shortfalls

Management’s estimate of the excess of central assets over solvency shortfalls is £2,446m, comprising:

  31 Mar 200931 Dec 2009 
 

 £m

£m 

Society net assets 

 985

 990

Subordinated liabilities

 1,070

 1,082

Central assets

 2,055

 2,072

Callable layer 

 495

 495

Other solvency adjustments

29

41

Central assets for solvency purposes

2,579

2,608

Solvency shortfalls

(133)

(133)

Excess of central assets over solvency shortfalls

2,446

2,475

The net assets of the Society have decreased by £5m, impacted by the continuing financial market volatility, which is discussed in more detail below. Additionally, in accordance with the accounting policies of the Society, Central Fund Contributions are not recognised until the beginning of the second quarter. A similar decrease in the net assets of the Society was experienced during the first quarter of 2008

The decrease of £12m in subordinated liabilities since the year end arises from an unrealised exchange gain on the conversion of euro denominated debt.

Investments

The financial market volatility which characterised 2008 has continued in the first quarter of 2009.

Government bonds, which proved to be a safe haven during 2008, have produced less attractive returns in the first quarter: Substantial growth in new issuance volumes, as Governments seek to finance their financial commitments arising from the credit crunch, has caused yields to rise, particularly at longer maturities.

Quantitative easing, which should help Government bond values by providing additional demand, has had a limited impact in the quarter.

Corporate bonds have seen mixed fortunes: many have experienced significant further losses in the period, with subordinated obligations of financial issuers being particularly hard hit as circumstances caused investors to reassess the risks inherent in such securities.

Elsewhere, some non-financial issues rose in value as historically high yield levels began to attract investor demand. Global equities fell by as much as 22% during this period and ended down 11% over the quarter, 50% below the highs of 2007.

Investment exposures of the Society arise principally within the Lloyd's Central Fund. Invested assets exceed £2bn and include exposures to volatile asset classes, including equities and hedge funds, reflecting the Fund's objective to optimise returns in the longer term.

The majority of investments are in fixed interest securities. Of these, exposure to corporate bonds is limited and does not include subordinated debt instruments, which has been beneficial in this period. However, the Fund has significant Government bond holdings and some of these experienced losses as yields rose in the first quarter, leading to an overall investment loss of £10m on the Society's investments in the period. This excludes foreign exchange losses of £12m on euro denominated assets held to match the Society's liabilities, which are off-set by an equivalent reduction in the sterling value of the relevant liabilities.

Contacts

Michelle Cunningham

Manager, Ratings & Investor Relations

+44 (0)20 7327 5434

Notes to Editors

A copy of Lloyd’s 2008 Annual Report can be accessed here.

Central assets include the assets of the Central Fund and the other assets of the Corporation. In aggregate, the value of Lloyd's central assets, excluding the callable layer and the liability in respect of the subordinated debt and securities, amounted to £2,055m at 31 March 2009. The Society financial statements are prepared in accordance with IFRS.

Callable layer: Central Fund assets may be supplemented by a ‘callable layer’ of up to 3% of members ‘ overall premium limits in any one calendar year. These funds would be drawn from premium trust funds.

This press release includes forward-looking statements. These statements are based on currently

available information and consistent accounting policies as applied at 31 December 2008. They reflect

Lloyd’s current expectations, projections and forecasts about future events and financial performance. All forward-looking statements address matters that involve risks, uncertainties and assumptions. Based on a number of factors, actual results could vary materially from those anticipated by the forward-looking statements. These factors include, but are not limited to, the following:

  • Rates and terms and conditions of policies may vary from those anticipated.
  • Actual claims paid and the timing of such payments may vary from estimated claims and estimated timings of payments, taking into account the preliminary nature of such estimates.
  • Claims and loss activity may be greater or more severe than anticipated, including as a result of natural or man-made catastrophic events.
  • Competition affecting the basis of pricing, capacity, coverage terms or other factors may be greater than anticipated.
  • Reinsurance placed with third parties may not be fully recoverable, or may not be paid on a timely basis, or such reinsurance from creditworthy reinsurers may not be available or may not be available on commercially attractive terms.
  • Developments in the financial and capital markets may adversely affect investments of capital and premiums, or the availability of equity capital or debt.
  • Changes in legal, regulatory, tax or accounting environments in relevant countries may adversely affect (i) Lloyd’s ability to offer its products or attract capital, (ii) claims experience, (iii) financial return, or (iv) competitiveness.
  • Economic contraction or other changes in general economic conditions could adversely affect (i) the market for insurance generally or for certain products offered by Lloyd’s, or (ii) other factors relevant to Lloyd’s performance.
  • The foregoing list of factors is not comprehensive, and should be read in conjunction with other cautionary statements that are included herein or elsewhere. Lloyd’s undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.

Foreign exchange rates may materially fluctuate from the rates prevailing at 31 March 2009 (£1 = US$ 1.43, £1 = €1.08)

For further information, please contact

About Lloyd’s
Lloyd's is the world's leading specialist insurance market and occupies fifth place in terms of global reinsurance premium income, and is the second largest surplus lines insurer in the US. In 2009, 74 syndicates are underwriting insurance at Lloyd's, covering all classes of business from more than 200 countries and territories worldwide. Lloyd's is regulated by the Financial Services Authority.