Lloyd's of London on Tuesday reported a massive drop in profits over last year's 1.32 billion pounds ($1.63 billion), coming in at a much lower 628 million pounds in the first half of 2010.
Citing the oil spill in the Gulf of Mexico and the earthquake in Chile as causes for the steep drop, Lloyd's chairman Lord Levene nonetheless said in a statement that the profits showed the strength of the market, even in the teeth of challenging investment conditions and softening rates. The first six months of the year have been the costliest since Lloyd's began publishing interim figures six years ago.
Claims resulting from the Chilean earthquake are expected to be net about 884 million pounds and the Deepwater Horizon disaster is estimated to range between 189 million pounds and 378 million pounds. Most of the exposure centers around the loss of the rig itself.
Lloyd's has taken steps in recent years to modernize its market, introducing a new franchise system and reducing the number of Names who back the market with unlimited liability. Its combined ratio is still below 100%, representing the break-even point, thanks to its underwriting for profit.
The first six months of this year, its combined ratio was at 98.7%, compared with last year's 91.6%--a solid performance compared to its peers.
This has already been one of the toughest years for the reinsurance market since 1994; the earthquake may come in as the second most expensive to insurers on record.