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Lloyd's publishes Interim Management Statement Q3 2009

Highlights:

  • Excess of central assets over solvency shortfalls of £2,548m (30 June 2009: £2,497m).
  • 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 30 September 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 market 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 has increased by £51m since 30 June 2009 to £2,548m, comprising:


30 Sept 0930 June 0931 Dec 09

£m

£m

£m

Society net assets

1,092

1,060

990

Subordinated liabilities

964

948

1,082

Central assets

2,056

2,008

2,072

Callable layer

530

530

495

Other solvency adjustments

67

64

41

Central assets for solvency purposes

2,653

2,602

2,608

Solvency shortfalls

(105)

(105)

(133)

Excess of central assets over solvency shortfalls

2,548

2,497

2,475

The increase of £16m in subordinated liabilities since the interim report arises from an unrealised exchange loss on the translation of euro denominated debt following the movement in the euro rate of exchange from 1.17 at 30 June 2009 to 1.09 at 30 September 2009.

Investments

The recovery in riskier asset classes, which began in earnest in the second quarter, has continued in recent months. Equities have risen by 50% from their lows in March and are up as much as 20% in the year to date. Corporate debt has also performed very strongly as credit spreads have fallen dramatically from the very high levels prevailing earlier in the year. Strong investor demand for such assets in recent months has been driven by growing confidence that the global economy is on the path to recovery as well as a desire to move away from the very low yields currently offered by cash and similar low risk investments. However, most Government bonds also performed well in the third quarter as the success of unconventional methods of easing monetary policy, together with moderating inflation expectations, caused yields to move lower.

Overall, favourable market movements have resulted in investment returns somewhat above the very modest levels which might be predicted from the low prevailing levels of interest rates and risk free yields, both in the third quarter and the year to date. However, the scope for further such gains is increasingly limited and we expect that current market levels will make it difficult to achieve significant returns in the balance of the year.

Investment exposures of the Society arise principally within the Lloyd's Central Fund. Investments include exposures to more volatile assets, such as equities and hedge funds, but the majority of assets are invested in fixed interest securities of high credit quality. Since the second quarter of 2009 we have been adding selectively to corporate bond exposures and this move has added to returns in the period. Overall, the Society's investment return for the 9 month period was a gain of £110m (30 June 2009: £20m). This includes the profit of £36m arising on the purchase and cancellation of Lloyd's debt securities in April and foreign exchange losses of £17m (30 June 2009: £32m) 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

  1. A copy of Lloyd’s 2008 Annual Report can be accessed at www.lloyds.com/2008results
  2. 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 £2,056m at 30 September 2009. The Society financial statements are prepared in accordance with IFRS.
  3. 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.
  4. 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.
  5. Foreign exchange rates may materially fluctuate from the rates prevailing at 30 September 2009 (£1 = US$ 1.60, £1 = €1.09)

For further information, please contact:

For urgent out of hours media calls Tel: +44 (0)7659 597 825

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.