Lloyd’s investors could see 5-10% returns for 2005: Moody’s

In its comment on the Lloyd’s market, Moody’s Investors Service says based on the strong underwriting results currently posted by the market, investors could see returns of 5-10% of capacity for the 2005 underwriting year, on top of 12% returns anticipated this year.Overall, Moody’s says policyholder security at Lloyd’s is at its highest level in more than a decade on the back of BP 6 billion in profits forecast for the 2002-2004 years of account. Policyholders are also benefiting from strong management through the new “franchise directorate”, as well as increased capital requirements due in 2005 and beyond. The rater feels on this basis that the London market should be able to avoid the extreme losses seen in the prior downturns.However, challenges remain, notably high reinsurance recoverables, pressure on the central fund from run-off companies, and the continued exposure to Equitas the market’s operation which deals with asbestos claims from prior years.As well, the rater wonders if Lloyd’s will be able to keep its head above the fray as the insurance market approaches the next soft market phase. “With regard to underwriting margins for 2006 and subsequent, concerns remain over the extent of underwriting discipline that may be maintained by some of the weaker underwriting units, notwithstanding that for Lloyd’s as a whole the franchise directorate should be able to curtail the extent of potential losses.”