's director offinance, John Parry, defended the market's use of reserve releases afteranother set of results in which prior-year reserve releases allowed Lloyd's tobook an underwriting profit.

Reserves,which firms set aside to meet policyholders' future claims, can be released ifexecutives believe that they have overestimated claims costs. But insurers havebeen accused of using reserve releases to buttress their results in lean years,including by the Prudential Regulatory Authority's executive director forinsurance supervision in a recent speech.

DavidRule said Sept. 21that the PRA is concerned that reserve releases "should reflect genuinereserve redundancy with the decisions taken by risk managers and actuariesusing their best professional judgment and not in any way influenced by adesire to sustain reported profits." He said one insurer thatthe PRA had studied appeared to be working on the basis of claim valueinflation falling 2% a year, as opposed to the regulatory assumption for thatline of business of a 5% rise.

AtLloyd's, prior-year reserve releases cut the market-wide first-half combined ratio by 5.7percentage points to 98.0%, although this was down from the 8.0 percentagepoints in the year-ago period. The combined ratio measures claims as aproportion of premiums, with a lower figure indicating a stronger performanceand anything over 100% implying an underwriting loss.

However,Parry denied that Lloyd's insurers sometimes booked reserve releases to make upfor weak underwriting profits in certain quarters, telling journalists that thefigures reflect better-than-expected claims costs in respect of policieswritten in prior years.

"[We're]very comfortable with the process and oversight that there is of the market'sreserving," Parry said.

"Whenwe look at the results, we've seen significant releases arise through gooddevelopments in years where underwriting profits have been superbly good — lowcatastrophe years like 2013, we've seen big surpluses, [and] we're seeing itthis year," he noted. "The biggest driver for that is simply actualloss development coming in inside projections. It doesn't seem to be influencedby a target number that insurers need."

Pricesfor insurance and reinsurance have declined steadily over recent years, aperiod during which natural catastrophe losses came in well below normallevels. Losses in the first half bucked past trends, however, with wildfires inAlberta, Canada, causing losses of £412 million for Lloyd's insurers, pushingup the market's combined ratio from the year-ago figure of 94.8%.

Totalclaims — which include small-scale, or "attritional," losses — cameto £5.12 billion in the first half, compared to £5.06 billion a year earlier.

Lloyd'sbooked a first-half pro forma pretax profit of £1.46 billion, up from £1.19billion earned in the year-ago period, boosted by an investment return thatrose to £1.09 billion from £339 million year over year. Gross written premiums,meanwhile, rose to £16.31 billion from £15.51 billion a year earlier.

The casualties of the pricewar

Inhis speech, Rule pointed to the problem of low profits in the insurance sector,saying that although the PRA is "not a price regulator," it remains"concerned to see that firms are adequately managing their exposures —that they can identify and quantify the risks being covered, manage and controloverall exposures, and estimate likely claims costs under different lossscenarios."

Parrysaid Lloyd's is pressuring the syndicates that write business through themarket to cut back on less-profitable exposures.

"Youcan be a great, well-performing syndicate meeting all the minimum standards,[but] you will have some classes in your portfolio that are bottom-quartile,not expected to produce profit, and we're expecting to see action [to] reduceexposure," he said.

Parryalso said Lloyd's is lobbying the U.K. government for a deal that wouldmaintain its members' ability to write business in Europe through the EU's"passporting" regime following Britain's departure from the bloc,though it is also considering other options including operating throughbranches on the continent or through a full subsidiary that is regulated inanother EU member state. Lloyd's was among the most prominent business voicesarguing in favor of remaining in the EU before the June 23 vote to leave.