Lloyd's escapes serious damage

LONDON - The Lloyd's of London insurance market slid to a small loss in 2005 as a result of large hurricane claims, it said yesterday.

But its financial position remained strong and it expects 2006 to be a good year.

Lloyd's, the world's largest and oldest insurance market, said it made a pretax loss of £103 million ($295 million), its first loss in four years, after being hit by the worst year on record for natural disasters.

The market made a profit of £1.37 billion in 2004.

Last year was the insurance industry's costliest year ever for claims, with catastrophe claims of US$83 billion ($135.5 billion), of which US$65 billion came from hurricanes Katrina, Rita and Wilma which buffeted the United States and the Caribbean.

Lloyd's had net claims of £3.31 billion from the string of major hurricanes but said it remained in sound financial shape.

"We've actually come out of 2005 with our central assets and our solvency ratio having increased. That's a real demonstration of the strength of the Lloyd's market currently," said Luke Savage, Lloyd's acting chief executive and finance director.

Although its claims from the 2005 hurricanes were well above its £1.98 billion hit from the World Trade Centre attacks in 2001, the market's overall annual loss last year was tiny compared with its £3.11 billion 2001 loss.

Savage attributed this to better risk-management procedures put in place since the September 11 attacks. Lloyd's businesses must now submit their plans for the next year for approval by a monitoring unit known as the Franchise Performance Directorate, to ensure they are not taking excessive risks.

The market had overall claims from the storms of £8.8 billion but the balance of £5.5 billion will be paid by reinsurers from whom Lloyd's businesses had bought policies to help protect themselves.

Savage said Lloyd's had no fears about syndicates not being able to recover all the money owed to them by their reinsurers, despite a number of reinsurers having hit financial difficulties because of their storm losses.

Around 93 per cent of the reinsurance covering the storm claims was investment grade, Savage said. "It's a very good-quality asset as far as we're concerned," he added.

The market is well placed to take advantage of current opportunities and is optimistic about its prospects for 2006, said Savage.

The January renewals season, when many of the annual risk contracts are renegotiated, had not reaped the price rises that Lloyd's had been expecting, but Savage said "we're hearing some good news about the April and July renewals", when Asian and US firms renew their insurance.

Sixty-two insurance businesses operate within the 318-year-old Lloyd's market, with underwriting capacity of £14.8 billion.

Richard Ward, former chief executive of the International Petroleum Exchange, will join Lloyd's later this month as its new chief executive.

One of his more important tasks will be making the market a cheaper and easier place to do business.

- REUTERS