Profits slide at Lloyd's of London after a catastrophic year

The insurance market made a £516m loss last year, after earthquakes, tornadoes and floods conspired to create the most catastrophic year in its 324-year history.

by Emma Haslett
Last Updated: 28 Mar 2012
With earthquakes rocking Japan and New Zealand, tornadoes sweeping across the US and floods hitting Thailand and Australia, there’s no denying last year was catastrophic. In fact, insurance market Lloyd’s of London reckons last year was the most catastrophic in its 324-year history, with total net claims hitting £12.9bn, including £4.6bn for catastrophes – pushing it to a £516m loss. Those of a religious persuasion might be inclined to suggest this was a message from God…

The loss compares with last year’s £2.2bn profit – although it’s nothing compared with the £3.1bn loss it made in 2001 after September 11. Before this, the most catastrophic year was 2005, when five hurricanes (including Katrina) hit the US. For the insurance industry as a whole, claims hit $107bn, making 2011 the second most expensive year next to 2005, when insurers shelled out $120bn.

The market paid out £1.07 for every £1 it took – but Lloyd’s chairman John Nelson said that despite the loss, the market still has a ‘strong capital position’. ‘We were able to make a profit in the second half of the year despite the floods in Thailand and continuing low investment returns,’ he said – which, added CEO Richard Ward, is ‘testament to Lloyd’s robust oversight and professionalism in the market today.’

That was reflected in the market’s central assets – the pot of cash set aside for insurers who can’t stump up the cash for claims – which rose by 0.5% to £2.39bn during the course of the year.

For investors, it isn’t a disaster: the insurance industry tends to work on a seven-year cycle, so as long as they earn in the long-term, they won’t complain.

For businesses, though, it’s slightly different: their first concern is whether insurers will jack up premiums in response. Naturally, the answer is yes, as insurers Amlin and Catlin Group said back in February. Apparently, premiums will go up between 4% and 17% - although Ward reckons that isn’t enough. ‘I am disappointed that, given the exceptional level of catastrophes in 2011, insurance rates have not responded more positively,’ he lamented. ‘These events demonstrate the need for the industry to show discipline in terms of pricing.’

We’re not sure his customers share that view… 

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