The listed Integrated Lloyd’s Vehicles (ILVs) lost shareholders’ funds totaling 2.1 percent — down from GBP6.2 billion in 2007 to GBP6 billion in 2008. The spread among individual ILVs ranged from an increase of 13 percent to a decline of 20 percent. The fall of the British pound relative to the U.S. dollar had a positive effect on earnings (converted to U.S. dollars). Earnings also contributed to the relative year-over-year stability.
(Chart is after the jump)
The impact of unrealized investment losses was muted, largely due to the conservative investment rules applied by Lloyd’s. Dividends were the largest capital outflow last year.
This year, the challenge will be to reverse the effects of the British pound’s depreciation relative to the U.S. dollar. Since much of 2009’s U.S. dollar capacity is funded in British pounds, managing agents will need additional capital. Lloyd’s has been raising capital this year … but at a price. In addition to unfavorable currency swings, the cost of equity capital appears to be up as evidenced by the significant discounts on some recent share offerings.