Lloyd’s to make $4.5bn in losses

Lloyd’s of London expects net losses of $4.5bn (€3.8bn) from hurricanes Harvey and Irma, which analysts said would eat into the insurer’s capital and hit its profitability.

Although losses from natural catastrophes have been low in recent years, including in the first half, that is set to change in the second half of the year, Lloyd’s chief executive Inga Beale said.

“There was limited major claim activity in the first half. There’s a very different second half emerging — it’s not only the hurricanes but we’ve got the Mexican earthquakes, floods in Asia, typhoons in Asia,” she added.

“The hurricane season is still in play, earthquakes can happen at any time,” Ms Beale said as Lloyd’s reported a 16% profit fall in the first half of 2017.

Lloyd’s 80-plus syndicates have already paid out more than $160m in claims from Harvey and more than $240m from Irma, Ms Beale said. The $4.5bn net loss estimate was based on modelling of “known exposures”, she added.

“Given that the Lloyd’s of London market typically produces earnings of £2.1bn-£3.5bn, it is highly likely that the market faces a capital loss,” Jefferies analysts said in a note.

Modelling firm RMS estimates total insured losses from Harvey and Irma of up to $80bn.

Meanwhile, Ms Beale said it was too early to assess losses from Hurricane Maria, which devastated Puerto Rico last week and which some analysts have predicted will lead to greater insurance losses than Harvey and Irma.

Lloyd’s made £1.22bn in profit before tax in the six months to the end of June, down from £1.46bn a year earlier, although Ms Beale said part of the drop in profit was related to currency fluctuations.

Insurance rates have been falling for the world’s largest specialist insurance market and other insurers for several years due to strong competition.

Lloyd’s return on capital worsened to 8.9% from 11.7%, due to pressure on returns from low interest rates. Gross premiums rose to £18.9bn from £16.3bn last year. Lloyd’s said it was on track to open its planned EU subsidiary in Brussels by the middle of next year, Ms Beale said, adding the new hub would employ “tens” of people and the firm would be submitting its formal licence application “very shortly”.

Reuters