Lloyd’s annual report 2010 report annual Lloyd’s 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 LLOYD’S ANNUAL REPORT 2010 Lloyd’s One Lime Street London EC3M 7HA Telephone +44 (0)20 7327 1000 Fax +44 (0)20 7626 2389 www.lloyds.com OUR BUSINESS LLOYD’S ACCEPTS BUSINESS FROM OVER 200 COUNTRIES AND TERRITORIES WORLDWIDE Our licences in over 75 jurisdictions, supported by a network North America Europe Central Asia & Asia Pacific of local offices, ensure access to insurance markets large Lloyd’s has offices in Atlanta, Chicago, Lloyd’s has full-time country managers Lloyd’s has offices in Australia and Hong Frankfort KY, Los Angeles, New York, supporting Lloyd’s market development Kong (SAR). In addition, Lloyd’s has three and small. Toronto and Montreal and is represented activities in Austria, Benelux, France, trading platforms to access business in in the US Virgin Islands by an attorney Germany, Iberia, Ireland, Italy, Poland, China, Japan and Singapore. in fact. Nordic Area, Switzerland and the UK. Latin America Africa Lloyd’s has an office in Brazil with co-located Lloyd’s has a full-time country manager syndicates to access reinsurance business. in South Africa. LLOYD’S total business by region LLOYD’S class breakdown by region 10 Central Rest 7 US & Other United Asia & Asia of the Canada Americas Kingdom Europe Pacific world TOTAL 4 Reinsurance 30% 75% 29% 38% 46% 62% 37% 43 Property 31% 7% 20% 14% 14% 8% 22% Casualty 20% 8% 22% 18% 28% 12% 20% 20 Marine 6% 4% 5% 17% 6% 7% 7% 16 US & Canada UK US & Canada 43% 20% Europe Energy 10% 4% 2% 7% 3% 3% 6% United Kingdom Europe 16% Central Asia & Asia Pacific Motor 1% 1% 21% 1% 1% 2% 5% Other Americas Central Asia Rest of the World & Asia Pacific Aviation 2% 1% 1% 5% 2% 6% 3% Rest of 10% the world 4% All Classes 43% 7% 20% 16% 10% 4% 100% Other Americas 7% LLOYD’S in numbers all underpinned by… 85 178 200 94% 97% 323 Syndicates Brokers Countries and territories Of the FTSE 100 Of dow Jones Years of underwriting of specialist underwriting daily creating insurance which covers… and… industrial average companies experience The cover and text pages of this report are printed on Revive 50:50 Silk, a recycled paper containing 50% recovered waste, 50% virgin fibre experience and talent solutions in over… and is certified as an FSC mixed sources grade. Revive 50:50 is manufactured to the certified environmental management system ISO 14001. Designed by Addison www.addison.co.uk. Printed by Screaming Colour Limited. Lloyd’s is a registered trademark of the Society of Lloyd’s. © Lloyd’s 2011 Lloyd’s Annual Report 2010 OUR BUSINESS LLOYD’S ACCEPTS BUSINESS FROM OVER 200 COUNTRIES AND TERRITORIES WORLDWIDE Our licences in over 75 jurisdictions, supported by a network North America Europe Central Asia & Asia Pacific of local offices, ensure access to insurance markets large Lloyd’s has offices in Atlanta, Chicago, Lloyd’s has full-time country managers Lloyd’s has offices in Australia and Hong Frankfort KY, Los Angeles, New York, supporting Lloyd’s market development Kong (SAR). In addition, Lloyd’s has three and small. Toronto and Montreal and is represented activities in Austria, Benelux, France, trading platforms to access business in in the US Virgin Islands by an attorney Germany, Iberia, Ireland, Italy, Poland, China, Japan and Singapore. in fact. Nordic Area, Switzerland and the UK. Latin America Africa Lloyd’s has an office in Brazil with co-located Lloyd’s has a full-time country manager syndicates to access reinsurance business. in South Africa. LLOYD’S total business by region LLOYD’S class breakdown by region 10 Central Rest 7 US & Other United Asia & Asia of the Canada Americas Kingdom Europe Pacific world TOTAL 4 Reinsurance 30% 75% 29% 38% 46% 62% 37% 43 Property 31% 7% 20% 14% 14% 8% 22% Casualty 20% 8% 22% 18% 28% 12% 20% 20 Marine 6% 4% 5% 17% 6% 7% 7% 16 US & Canada UK US & Canada 43% 20% Europe Energy 10% 4% 2% 7% 3% 3% 6% United Kingdom Europe 16% Central Asia & Asia Pacific Motor 1% 1% 21% 1% 1% 2% 5% Other Americas Central Asia Rest of the World & Asia Pacific Aviation 2% 1% 1% 5% 2% 6% 3% Rest of 10% the world 4% All Classes 43% 7% 20% 16% 10% 4% 100% Other Americas 7% LLOYD’S in numbers all underpinned by… 85 178 200 94% 97% 323 Syndicates Brokers Countries and territories Of the FTSE 100 Of dow Jones Years of underwriting of specialist underwriting daily creating insurance which covers… and… industrial average companies experience The cover and text pages of this report are printed on Revive 50:50 Silk, a recycled paper containing 50% recovered waste, 50% virgin fibre experience and talent solutions in over… and is certified as an FSC mixed sources grade. Revive 50:50 is manufactured to the certified environmental management system ISO 14001. Designed by Addison www.addison.co.uk. Printed by Screaming Colour Limited. Lloyd’s is a registered trademark of the Society of Lloyd’s. © Lloyd’s 2011 Lloyd’s Annual Report 2010 Lloyd’s annual report 2010 report annual Lloyd’s 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 LLOYD’S ANNUAL REPORT 2010 Lloyd’s One Lime Street London EC3M 7HA Telephone +44 (0)20 7327 1000 Fax +44 (0)20 7626 2389 www.lloyds.com 01 Contents Financial highlights 03 Chairman’s statement 04 About Lloyd’s 06 How we work 08 02 Governance 13 Lloyd’s to Welcome Business highlights 19 CEO’s introduction 20 Strategy 22 Business environment 23 2011 priorities 25 18 overview Strategic International reach 26 Key performance indicators 28 Risk management 30 People strategy 33 Corporate responsibility 36 2010 Market performance review 43 Risk and uncertainties 49 Reinsurance 51 Property 52 Market performance Market 42 Casualty 53 Marine 54 Energy 55 Motor 56 Aviation 57 Statement of Council’s responsibilities 59 Report of Ernst & Young LLP to the Council of Lloyd’s on the 2010 Lloyd’s pro forma financial statements 59 Pro forma financial statements 60 58 Notes to the pro forma financial statements 63 Security underlying policies issued at Lloyd’s 71 Market results Market Introduction 75 Financial highlights 76 Corporate governance 77 Internal control statement 82 74 Report of the Nominations, Appointments and Compensation Committee 83 Report of the Audit Committee 92 Report of the Lloyd’s Members’ Ombudsman 94 report Society Financial review 95 Statement of the Council of Lloyd’s responsibilities in relation to the financial statements 100 Independent auditor’s report to members of the Society of Lloyd’s 101 Society of Lloyd’s financial statements 102 Notes to the financial statements 107 Appendix – Managing agents and syndicates 139 Lloyd’s Annual Report 2010 Glossary of terms 141 02 WELCOME TO LLOYD’S WELCOME TO LLOYD’S Lloyd’s Annual Report 2010 2010 AT A GLANCE 03 Financial > Lloyd’s achieved a profit before tax of £2,195m (2009: £3,868m) Highlights and a combined ratio of 93.3% (2009: 86.1%). The reduction in profits reflects the increase in catastrophe related claims, particularly the Chilean earthquake in February and the Lloyd’s to Welcome prevailing low interest rate environment > Gross premium income remained steady at £22,592m (2009: £21,973m) as Lloyd’s strong ratings and licence network brought more opportunities balanced against slightly softening market conditions > Central assets at record level of £2,377m (2009: £2,084m) following significant recoveries from insolvent members as legacy issues are resolved Strategic overview Strategic The pro forma financial statements (PFFS) are Gross written premium PROFIT BEFORE TAX prepared so that the financial results of Lloyd’s £m £m and its members taken together and their net assets can be compared with general insurance companies. The PFFS include the aggregate of 2006 16,414 2006 3,662 syndicate annual accounts (Aggregate Accounts), members’ funds at Lloyd’s (FAL) and the Society 2007 16,366 2007 3,846 of Lloyd’s financial statements. 2008 17,985 2008 1,899 2009 21,973 2009 3,868 To read more on our financial results see page 42. 2010 22,592 2010 2,195 The Aggregate Accounts are reported as performance Market a separate document and can be found £22,592m £2,195m at www.lloyds.com/financialreports CAPITAL, RESERVES AND SUBORDINATED CENTRAL ASSETS* DEBT AND SECURITIES £m £m 2006 13,333 2006 1,454 2007 14,461 2007 1,951 2008 15,264 2008 2,072 2009 19,121 2009 2,084 2010 19,121 2010 2,377 Market results Market £19,121m £2,377m RETURN ON CAPITAL COMBINED RATIO* % % 2006 31.4 2006 83.1 2007 29.3 2007 84.0 2008 13.7 2008 91.3 2009 23.9 2009 86.1 2010 12.1 2010 93.3 report Society 12.1% 93.3% * See Glossary on page 141. The basis for translating income and expenditure and assets and liabilities in foreign currency is set out on page 64. Lloyd’s Annual Report 2010 04 WELCOME TO LLOYD’S CHAIRMAN’S STATEMENT A large part of the challenge for the Lloyd’s market is that it must prepare for the unexpected Financial services will be central to any recovery – in the UK and elsewhere. Lloyd’s Annual Report 2010 05 Welcome to Lloyd’s to Welcome In 2010, none of the Atlantic storms made landfall That said, our capital security remains strong in the United States.