Lloyd's hammered as claims surge amid series of natural disasters

Insurance market Lloyd's of London saw profits almost halve last year after a string of disasters sent claims soaring, but said it was still able to meet the cost of this year's catastrophes.

The 323-year-old institution, which is made up of 85 underwriting syndicates, made 2.2 billion in 2010, despite taking hits from devastating earthquakes in Chile and New Zealand, as well as floods in Australia.

The figure is down 43 per cent on 2009, a year that witnessed fewer natural disasters.

The specialist insurance market said yesterday that it was still too early to give an estimate on the bill from the Japanese earthquake and tsunami, but it expects total claims to fall well within its budgeted "realistic disaster scenario", which features a $64bn (39bn) earthquake centred on Tokyo.

The 11 March event, which hit northern Japan, is likely to affect Lloyd's businesses by less than half that amount.

The Japanese government has estimated economic damage of the disaster at $198bn-$309bn, although the insurance industry is expected to pick up only a fraction of the total, as most losses to households are covered by a state-funded programme.

Lloyd's chairman Lord Levene said the recent run of catastrophes showed the "crucial role insurance plays in helping communities rebuild after a crisis".

Members were also knocked last year by $386 million in net claims for the loss of BP's Deepwater Horizon oil rig in the Gulf of Mexico, which exploded in April and caused America's biggest ever oil spill.

But revenue from premiums was still higher than claims paid out by Lloyd's insurers in 2010, giving it a combined ratio - a key insurance industry measure - of 93 per cent, down from 86.1 per cent the year before. It said that compared favourably to most US and European insurers and re-insurers.

The market was also hit by a 29 per cent drop in investment income amid weaker financial markets and low interest rates.

Chief executive Richard Ward said: "These are challenging times for insurers. Rates have been softening, there is excess capital across the industry and investment returns are down. In 2011, we must help the market steer through the cycle, ensuring they underwrite for profit and not growth.

"At the same time, we are positioning the market to take advantage of future opportunities by expanding in new economies and making it even easier to do business with Lloyd's."

Ward said another challenge facing the industry was Solvency II, the new set of capital rules for European insurers set to be introduced in 2013. He said: "I am confident we are making good progress. However, I am increasingly concerned by the cost and complexity of this exercise."We must make sure this one piece of regulation doesn't do lasting damage to our international competitiveness - either for Lloyd's or the industry."

Although Lloyd's is not a publicly-quoted company, some of its members are listed.