Lloyd’s of London profits dented by year of disasters

Catastrophe: the London market provided nearly half he insurance for the Deepwater Horizon oil rig which exploded and sank in April
11 April 2012

The worst year for catastrophes since Hurricane Katrina devastated New Orleans in 2005 has slashed first-half profits for the Lloyd's of London insurance market.

The group is expecting to pay out $1.4 billion (£886 million) in claims for February's earthquake in Chile as well as up to $600 million for BP's Deepwater Horizon disaster in the Gulf of Mexico, where it provided nearly half the insurance for the Transocean rig which exploded and sank in April.

Pre-tax profits more than halved to £628 million from £1.32 million in the "challenging" conditions, with claims running at twice the average of the last 10 years.

After the disasters which have beset the usually benign first six months of the year, Lloyd's finance director Luke Savage is now crossing his fingers that the group emerges relatively unscathed from the US hurricane season.

"So far in the second half we have not seen any major US hurricane make landfall," he said.
Despite the surge in claims and a 9% fall in UK shares during the first half, the insurer benefited from a flight to quality sparked by panic over the sovereign debt of the weaker "PIGS" nations — Portugal, Ireland, Greece and Spain — earlier this year.

This pushed up the value of its UK and US bond holdings and helped limit declines in the group's investment income, which was down 15% to £597 million. "Because of the nature of the business that we write, we are always very long in the UK and US," Savage added.

With the insurance industry now holding a glut of capital, Lloyd's added that underwriting conditions had become "more challenging", and rates are either flat or falling in most classes — with the exception of insurance for oil rigs and South American earthquake cover.

However, prices are rising in motor insurance due to a surge in personal injury "claims farming" by no win no fee lawyers.

Chairman Lord Levene added that the period had "tested not only Lloyd's but insurers around the globe".

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