Lloyd’s slumps to £516m loss as natural disasters take a toll

Lloyd’s, which traces its roots back 324 years to a London coffee house where merchants met to insure ships, yesterday revealed it made a loss of £516 million, compared with a £2.2 billion profit in 2010.

The loss, reflecting the aggregate financial performance of 80 competing insurance syndicates that make up the Lloyd’s market, was second only to the £3.11bn deficit it reported for 2001 following the 11 September attacks.

Chief executive Richard Ward said: “Make no mistake, 2011 was a difficult year for the insurance industry. Given the scale of the claims, a loss is unsurprising.”

Lloyd’s incurred £4.6bn of natural disaster-related claims during 2011, the highest on record, taking total payouts for the year to £12.9bn.

Last year was the insurance industry’s second-costliest for catastrophes, with earthquakes, floods and tornadoes generating total claims of $116bn (£73bn), according to Swiss Re, the world’s second-largest reinsurer.

That was surpassed only by an insured loss of $123bn in 2005, when Hurricane Katrina devastated New Orleans.

Ward said he was disappointed insurance prices, which have been declining or stagnant across much of the market since 2008, had not risen more convincingly in response to last year.

Insurance prices typically climb in the wake of large payouts by the industry as financially weaker players retrench, easing competitive pressures and freeing those still in the market to charge more.

However, significant increases this year have been confined to directly catastrophe-related lines of business, with prices across the broader market rising only moderately, insurers and brokers have said.

Lloyd’s finance chief Luke Savage said a steady influx of capital into the industry from investors looking for a safe haven amid depressed financial markets had suppressed the market’s traditional pricing mechanism. He said: “In an environment where investment returns are at record lows, even with the soft rates we are currently seeing in the insurance industry, it is still an attractive place to park your capital.”

Weak investment yields, reflecting rock-bottom interest rates and strong demand for high-quality government bonds, also took their toll on Lloyd’s last year, with total returns falling 24 per cent to £955m.

John Nelson, chairman of Lloyd’s, said the market’s capital position was unchanged and it recorded a profit in the second half of the year.

Nelson added: “We know market conditions are likely to remain tough in 2012.”