Lloyd’s Hurricane Losses Top $ 5 Billion

In an updated statement, Lloyd’s acknowledged that it now estimates the London market’s combined losses from the three hurricanes that struck the U.S. will exceed $5 billion. The new figures are based on the results gathered from a “Major Loss Return” from each Managing Agent. Net losses from Katrina are now estimated at £1.9 billion ($3.27 billion). (The exchange rate of $1.7215 to one £ is slightly lower than Lloyd’s conversion figures.)

The provisional estimate was £1.4 billion ($2.55 billion–at the time) given by Lloyd’s last Sept. 14, which did note that they were based on “the very limited information available at the time.” The net loss from Rita is estimated at £535 million ($921 million), and from Wilma at £483 million ($855 million).

As a result, Lloyd’s indicated, “the chances of the market making a profit in 2005 are now small.” The projected loss would be Lloyd’s first since 2002, and the first since the changeover to annual accounting. There was no indication of the amounts involved.

Although the three-fold hit is a heavy blow, it hasn’t seemed to dampen the Syndicates appetite for risk. In line with Chairman Lord Peter Levene’s and departing CEO Nick Prettejohn’s commitment to pursue underwriting profits, Lloyd’s had planned to reduce overall capacity by around 7 percent for 2006. However, the ravages of Katrina and her sisters have led to a change of plans.

Lloyd’ noted: “Syndicates will be supported by capital from members of over £9 billion [$15.5 billion] in 2006, an increase of £500 million [$860 million] on the original plans for next year.”

That confidence appears genuine. The bulletin said: “The Lloyd’s market remains financially strong. The market expects to be able to meet all its liabilities with immaterial impact on the Central Fund. Further there is nothing to suggest that any syndicate will be unable to trade forward as a result of the hurricanes.” That Lloyd’s is able to make that statement is testimony to the successful changes it’s carried out over the last 10 years.

Total planned capacity for next year is approximately £14.7 billion [$25.3 billion], an increase of 7 percent on this year. The industry needs that capacity in the wake of Katrina et. al., as primary carriers and reinsurers struggle to cope with the claims from the hurricanes.

Upping capacity at this point is simply good business, and as Luke Savage, Lloyd’s director of finance and risk management said, “the events of the past few months have shown that the determined focus at Lloyd’s on underwriting discipline has not come at the expense of the market’s ability to react speedily and flexibly to the opportunities brought about by changing conditions. The planned increase reflects the change in market conditions and is an appropriate response from the market.”