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WSWS : News & Analysis : World Economy
Lloyd�s members insist "very large profits are possible" following
September 11
By Richard Tyler
1 November 2001
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An internal newsletter sent to nearly 3,000 Lloyd�s �Names��rich
individuals who pledge their wealth to back insurance risks�says they
stand to make huge profits in the wake of the September 11 terror
attacks.
The newsletter, issued by the Association of Lloyd�s Members,
contains a report entitled, �The Terrorist Attacks on the United
States - PART I THE OPPORTUNITY.� The document forecasts, �Names may
now have an historic opportunity for profitable underwriting.�
�The market was hardening strongly before the attacks, but since
September 11 rates have shot up to a level where very large profits
are possible.�
Anthony Young, chief executive of the association, defended the
newsletter, saying the report was meant to help members make
�investment judgments�.
Insurance premiums for major airlines have increased by between 400
and 600 percent in the wake of the terrorist attacks. The world�s
five largest airlines all have policies at Lloyd�s, which controls
almost 25 percent of world aviation insurance. Aviation war rates
have risen by an astronomical 1,400 percent, while maritime war rates
have increased by 500 percent.
The British government has agreed to meet part of the extra insurance
costs to the airlines, effectively channelling public money into the
pockets of the Lloyd�s Names and the giant insurance conglomerates
that control this multi-billion industry.
Lloyd�s provides insurance in over 100 territories and is the largest
insurer and the second largest business insurer after Tokyo Marine
and Fire Insurance, according to Standard and Poor, with net premiums
worth nearly $10 billion. Almost 70 percent of the FTSE 100 top
companies and 83 percent of the Dow Jones Industrial Average have
policies through Lloyd�s.
In 2000, Lloyd�s made a �118 million surplus, a 54 percent increase
on the previous year. The vast bulk of this came from premium levy
income, which rose from �81 million in 1999 to just under �98 million
last year. Lloyd�s holds almost $7.6 billion in US funds, which is
its largest market and accounts for 35 percent of its total premiums.
Lloyd�s is not a single business, but a marketplace in which
individuals (the �Names�) and syndicates compete to provide insurance
cover. It originated in 17th century London, at the Tower Street
coffee house belonging to Edward Lloyd, where wealthy individuals
would meet and agree to take a share in the risk of insuring a vessel
and its cargo. They signed their names one below the other on a
document listing the amounts they had decided to cover, hence the
term �underwriters�. The Lloyd�s Act 1871 incorporated the Society of
Lloyd�s, providing the legal basis for today�s multi-billion
insurance market.
According to the Financial Times, �Prospective Lloyd�s Names should
possess three qualities: a voracious appetite for risk, �350,000
($500,000) or more in investable assets and the capacity to take
losses on the chin.�
In return, they can expect to make a handsome profit over the long
term from their investments, in what the Financial Times says
�underwriters call the hardest, or most highly priced, market for
commercial lines insurance in a generation.� Those operating through
Lloyd�s also enjoy an extremely favourable tax regime, which
contributed some �18 million towards last year�s surplus.
The number of individual Names has dropped from over 35,000 ten years
ago, to just under 3,000 today, as massive corporate insurance
interests have moved in. Some 890 corporate Names, mainly large US
and European insurance companies and investment banks, now control
most of the business done at Lloyd�s.
Total insurance losses from the September 11 attacks are estimated to
be as high as $40 billion. Lloyd�s own exposure as a result of the
terrorist bombings in New York and Washington is projected at �5.4
billion ($15.5 billion). Lloyd�s has been able to win a reprieve from
the US authorities from a November 15 deadline for posting its entire
liability, instead only setting aside 60 percent or �3.24 billion,
with the rest due March 2002. Lloyd�s chairman Sax Riley said it was
a matter of short-term liquidity, not solvency.
Lloyd�s has already made a cash call to its members worth �780
million to meet US claims, with individual Names possibly having to
fork out up to �100,000 to meet their share of these liabilities.
Although in the short-term some Names may have to reach into their
wallets to provide funds, the Financial Times noted, �Many existing
Names are increasing their exposure, however, hoping to trade out of
their current losses and possibly turn a profit. �I am buying
capacity right now,� said [Association of Lloyd�s Members chairman]
Mr Deeny. �I�ll be underwriting 80 per cent more next year.��
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