Lloyd’s faces £1.4bn hit from Thai floods

Published on Wednesday 15 February 2012 00:00

Last year’s Thai floods look set to cost the Lloyd’s of London insurance market some £1.4 billion, the third-biggest loss it has absorbed in its 324-year history.

Yesterday’s estimate, which is in line with forecasts for an industry loss of up to $20bn (£12.6bn), is on top of recent major natural disasters in Australia, Japan, New Zealand and the United States.

Chief executive Richard Ward stressed that the market was financially strong enough to cope. “The Lloyd’s market is as well capitalised as it has ever been,” he said. “Paying these claims is within the normal course of business for Lloyd’s.”

The floods, Thailand’s worst in 50 years, began in July and inundated large swathes of the country’s centre and north-east before finally subsiding in December.

At some £1.4bn, the cost of the floods would rank as Lloyd’s third-biggest loss in absolute terms, surpassed only by Hurricane Katrina and the September 11 attacks, a spokesman for the market noted.

Estimates of the insurance hit from Thailand’s floods, initially put at about $10bn, have risen steadily as slowly-receding flood waters have allowed loss adjusters to gauge their impact more accurately.

The cost to insurers has also been inflated by a rash of business interruption claims after the floods disabled factories operated by major Japanese and US multinationals, triggering a shortage of components in the car and electronics industries.

Hannover Re, the world’s third-biggest reinsurer, on Monday said it expected claims of about £165 million, nearly double its initial estimates.

Collins Stewart analyst Ben Cohen, who estimates that Lloyd’s has historically borne 10 per cent of large insurance losses, said: “Generally when companies have come out they have come out with high estimates – it does look like Lloyd’s has taken more than their average share.”

The Lloyd’s insurance market, which is made up of 87 underwriting syndicates, reported half-year losses of £697m in September after incurring £6.7bn in claims from a string of major natural disasters.

It said at the time that 2011 was set to be the second most expensive year ever for insurers, but that its own claims were being met without any call on its central fund – its fund of last resort.

As well as the high number of disasters, Lloyd’s has had to cope with challenging investment conditions.

The market has shown in recent years that it is more than able to cope with major catastrophes, including US hurricanes.

Among changes to modernise the market, Lloyd’s introduced a new franchise structure and phased out the number of “Names” who backed the market with an unlimited liability.

Lloyd’s, which can trace its origins back to a 17th century London coffee house where merchants insured ships, is due to report its results for 2011 as a whole on 28 March.

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