Lloyd’s surprised many in the business with its interim figures this week by turning in a loss before tax of £697m ($1.09bn). That’s a lot, but many thought it was going to be an even bigger loss.
Mazars, the audit and accounting firm, had earlier estimated a loss figure of £1.5bn, which was predicated on the first-half losses of Amlin, Catlin and Hiscox (£192m, £127.3m and £86m pre-tax respectively).
Like everyone, Lloyd’s insurers were hit by big cat losses in the first half. The losses from Japan, Australasia and the US made it the costliest six months on record.
It seems that the results of the big listed insurers at Lloyd’s were not indicative of the overall market’s performance after all, however. They are multi-platform insurers and source business from outside Lloyd’s, into Bermuda, the London company market and European companies.
That Lloyd’s did better than the wider market is borne out by the comparative combined ratios posted in the first half. Lloyd’s combined ratio of 113.3 % (June 2010 98.7%) compares favourably with its peers in the Bermudian (re)insurance (117%) and the US reinsurance industries (116%).
It looks like Tom Bolt’s franchise performance unit is helping keep Lloyd’s companies on the straight and narrow.
So the big Lloyd’s loss story turned out to be a damp squib.
A more interesting Lloyd’s story that has got legs is the level of M&A activity happening in the market.
Hardly a day passes without talk of a Lloyd’s business changing hands, it seems.
Insurance tycoon Mark Byrne drew attention to the potential for continued activity last week in Monte Carlo when he said that: “Five or six businesses in the Lloyd's of London insurance market are up for sale, and two need to find a buyer.” He’s currently trying to buy a stake in Lloyd's insurer Omega.
Neither of the two that need a deal are listed, Byrne clarified.
A co-founder of Bermudan reinsurer Flagstone Re and son of US insurance magnate Jack Byrne, Byrne is after a 25% stake in Omega and is in competition with private equity-backed Lloyd’s insurer Canopius Group as well as another Lloyd’s company Barbican.
The theory is that persistently weak insurance prices have played on Lloyd's insurers' shares, creating some attractive takeover opportunities. In addition, the smaller Lloyd’s companies especially are threatened by the tough requirements of Solvency II, due 2013.
Recent activity includes Chaucer accepting a £292m offer from US insurer Hanover Insurance in April, and Brit last year surrendering to a bid from buyout firms Apollo and CVC.
In May, US insurance broker Ryan Specialty Group (RSG), run by former Aon chief executive Pat Ryan, acquired Lloyd’s insurer Jubilee Group Holdings.
Jubilee Group Holdings owns Jubilee Managing Agency Limited and the distribution and administration businesses Lutine Assurance Services, Jubilee Service Solutions and Amsterdam-based Jubilee Europe BV.
More recently, the specialty insurance company ProSight Specialty Insurance, backed by affiliates of Goldman Sachs and private equity TPG Capital announced it would buy TSM Agencies Ltd and 100% of the rights to Lloyd's Syndicate 1110.
Then a consortium comprising of Skuld, the Paraline Group and Tawa said it would acquire Whittington Insurance Markets, the venerable Lloyd’s agency management services firm while specialty Bermuda insurer Torus has clinched a deal with Clal Insurance Enterprises for the acquisition of Lloyd’s Syndicate 1301 and its corporate members Broadgate Underwriting and Broadgate Underwriting 2010.
Of course Skuld and also French reinsurer Scor recently opened new businesses in the market.
So Lloyd’s resembles a swan in choppy waters: serene and steady on the surface and a great deal of activity going on down below. And if participants are buffeted by more stormy weather or metaphorical turbulence in the financial markets, expect to see even more activity around the 50-plus companies that constitute Lloyd’s.