Hurricanes blow away Lloyd's profits

THE Lloyd's of London insurance market gave warning yesterday that the chances of it making a profit for 2005 were "small" due to claims of a shade under £3 billion from the costliest-ever US hurricane season.

Lloyd's, three centuries old and the world's largest insurance market, raised its net loss estimate from Hurricane Katrina, the insurance industry's costliest event on record, to 1.9bn from 1.4bn.

Hurricanes Rita and Wilma will cost it 535 million and 483m respectively, the market said.

Luke Savage, Lloyd's finance director, said: "The losses may be larger but Lloyd's is financially strong and we can take it in our stride." However, he declined to speculate on what losses the organisation might record this year.

Lloyd's, which came to the brink of collapse in the 1990s after a series of storms and disasters and a build-up of unresolved asbestos claims, expects to be able to meet all its liabilities and said none of its 62 syndicates or mini-insurers had been made insolvent from the storms.

The devastating trio of US storms, which killed more than one thousand people, displaced more than one million and bulldozed the US Gulf coast, are expected to cost the insurance industry 79bn.

A growing list of insurers and reinsurers have scrapped profit forecasts following the season, including Hannover Re and Swiss Re. Munich Re, the world's largest reinsurer, has estimated a net loss of €750 million from the US storms.

Ironically, although the hurricane season has hurt profits, it has also given insurers an excuse to maintain the high premiums brought in after the 9/11 terrorist attacks on America.

Insurers on the Lloyd's market, such as Hiscox, Amlin and Kiln, have raised millions of pounds of capital to provide more coverage next year to take advantage of the rising rates.

Lloyd's said it expected to increase its capacity to underwrite risks in 2006 by 7 per cent to 14.7bn.

Before the latest hurricanes, the market had expected to reduce its 2006 underwriting capacity by 7 per cent.

Higher premiums after the 9/11 attacks helped Lloyd's to post three years of profits, starting in 2002, after six consecutive years of losses.

But Lloyd's 2004 pre-tax profit fell nearly 30 per cent to 1.36bn after previously clocking up 1.3bn of losses from a string of hurricanes in Florida.