Profits down, lawsuits up says Lloyd's of London

Profits on the world's biggest insurance market more than halved last year, and there's worse to come...

Last Updated: 31 Aug 2010

Natural disasters – like hurricanes Gustav and Ike – combined with the man-made effects of the credit crunch and now recession to cut Lloyd’s profits to £1.9bn for 2008, down  from £3.85 in 2007. Lloyd’s anticipates a worse year to come, as demand slows down and claims continue to rise.

One of the factors driving the increase in claims, says the company’s annual report, will be a dramatic increase in class actions against businesses and their management teams by disgruntled investors turning to the law in hopes of getting at least some of their money back. 

'We anticipate that plaintiffs will bring suits against any targets that they consider have the resources to recompense them and the Professional Indemnity (PI) coverage available will be a key consideration. This will include Directors & Officers' Insurance (D&O) and Errors & Omissions Insurance (E&O) for financial institutions and financial advisers’ stated Lloyd’s. We can already hear the cry going out: ‘But who will insure the insurers?’

So it’ll be open season on those underperforming firms which, despite their economic travails, have managed to keep their professional insurance up to date. It hardly seems just that the people most likely to escape such actions are those who are cavalier or incompetent enough not to have taken out PI or D&O cover in the first place. Such is the topsy-turvy world we live in now – or maybe insurance has always been like that.

But looking on the bright side, Lloyd’s chairman Lord Levene said that the long term prospects were good because the profitability of insurance companies was not linked to economic cycles (haven’t we heard this sort of talk somewhere before?). ‘Statistics show that the industry did better during the Great Depression than for most of the boom years of the 1980s,’ he said. So that’s alright then.

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