Lloyd’s ‘can cope’ with $2.5bn cost of Superstorm Sandy in US

LLoyd's of London expects to face claims of between $2bn and $2.5bn as a result of Sandy
LLoyd's of London expects to face claims of between $2bn and $2.5bn as a result of Sandy
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SUPERSTORM Sandy, which devastated the American eastern seaboard, could cost Lloyd’s of London up to $2.5 billion (£1.55bn), the insurance market revealed.

Lloyd’s said the storm, which caused unprecedented flooding in downtown New York and wreaked havoc in much of New Jersey, was the third-biggest loss in the organisation’s 324-year history.

It said an estimated loss of between $2bn and $2.5bn was “consistent with insurance industry losses [from Sandy] of between $20bn and $25bn”.

However, Lloyd’s said it could cope comfortably with claims from Sandy, and there would be no impact on the market’s central fund, a cash reserve used to meet claims if any of its insurance syndicates is unable to pay up.

Richard Ward, Lloyd’s chief executive, said: “As always, our priority is to pay valid claims as quickly as possible and help the communities in North America and the Caribbean affected by Sandy get back on their feet.

“The Lloyd’s insurance market remains financially strong and, while claims from this storm could still evolve over time, the market’s total exposure is well within the worst-case scenarios we model and prepare for.”

Sandy, which killed 132 people as it swept through the north eastern United States on 29 October, is set to be the second costliest storm for the global insurance industry after hurricane Katrina in 2005.

At the top of the Lloyd’s estimated range in claims, Sandy would displace last year’s Thai floods as the market’s third-biggest loss, surpassed only by Katrina and the 9/11 terrorist attacks on the World Trade Centre and Pentagon.

Katrina cost Lloyd’s $4.3bn and 11 September $3bn. Sandy came towards the end of a relatively uneventful year for natural catastrophes, contrasting sharply with 2011, which was the industry’s second-costliest year on record after Japan’s Tohoku earthquake and Thailand’s worst floods in half a century.

Analysts say that insurers’ claims bill for 2012 as a whole will be relatively subdued and most should turn a profit for the year.

“My overriding view is that all Sandy will do is turn what would have been an exceptionally profitable year back into an average to slightly below average year,” Espirito Santo analyst Joy Ferneyhough said.

Analysts said Lloyds was an incomparably stronger organisation now than in it nadir of the late 1980s and early 1990s.

At that time the market came close to foundering as it lost £14bn through a mixture of asbestos claims and natural disasters such as the Alpha Piper oil fire off the North-east coast of Scotland that claimed 167 lives.

Insurers look set to absorb about $65bn in catastrophe claims this year, slightly more than half the $120bn suffered in 2011, reinsurer Swiss Re said yesterday.

Insurers and analysts say that assessing the final bill from Sandy is difficult because of the size of the affected region, which includes densely populated and industrialised areas.