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Insurer Lloyd’s Posts Highest Profit in 5 Years as Claims Drop

Matt Clinch, special to CNBC.com
Wednesday, 26 Sep 2012 | 8:21 AM ET

U.K. insurance group Lloyd’s of London, which comprises nearly 90 syndicates, reported an interim profit of 1.53 billion pounds ($2.48 billion) for the first six months of the year after a lack of major claims from natural catastrophes.

The interior of the Lloyd's of London building and the Lutine bell, center, is seen through a fish-eye lens in the City of London.
Bloomberg
The interior of the Lloyd's of London building and the Lutine bell, center, is seen through a fish-eye lens in the City of London.
Lloyd's Good Fortune
John Nelson, chairman of Lloyd's of London, says the drop in the level of major catastrophe losses, following a historically disastrous 2011, helped Lloyd's return to profit.

It marks the highest profit the firm has seen for the last five years and is in contrast to the first half of 2011 when the Japanese tsunami and other major events led to large claims.

For the six months ending June 30, net claims totaled 4.6 billion pounds, compared with 6.7 billion pounds a year earlier. But Chairman John Nelson said there was reason to be cautious.

“The first half of the year is not necessarily an indication of the full year so we wait to see,” he told CNBC Wednesday, adding that the current period was the peak season for storms in the United States.

As well as a reduction in claims, Nelson said the company was well positioned against the current euro zone crisis.

“We keep our assets because we are a general insurer rather than a life insurer in short-term and very liquid instruments,” he said. “Our exposure to the euro zone, particularly to the peripheral countries, is minimal.”

Nelson said the firm was well placed for the introduction of the Solvency II Directive – a law passed by the European Union that will come in to effect in 2014 – which sets the amount of capital that insurance companies have to hold.

Lloyd’s says it will seek growth in emerging markets such as southeast Asia, Latin America and China.

“Generally in the U.K., big business has an opportunity, rather like Lloyd’s does, to develop markets in the emerging growth territories which will create wealth in the U.K.,” Nelson said.

The changes and versatility of the insurance sector hasn’t gone unnoticed by Paul Kavanagh. He runs a large team of brokers and analysts at Killik & Co and is positive about the investment opportunities the insurance industry has to offer.

“The market over the last ten years, the whole entire insurance market through Lloyd’s, has tightened up its regulation, discipline and risk management,” he told CNBC Wednesday.

“That has had an effect of allowing these businesses to operate in a safe environment and for ratings to get better.”

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