Lloyd’s Posts AUD$850 Million Overall Loss for 2011

Lloyd’s of London proved just how severe the second costliest year for catastrophes on record for the insurance industry actually was. They announced a loss of £516 million ($822 million) for 2011. To be perfectly honest, while this appears large, it is a lot less than I would have expected when considering the number and scale of claims.

Lloyd’s reported that it had incurred total net claims of £12.9 billion (AUD$22 billion) during 2011, including £4.6 billion (AUD$8 billion) of catastrophe claims, this made it the ”largest catastrophe claims year on record for the 324-year-old insurance market.”

The claims from the world’s global catastrophes included flooding here in Australia in January 2011, the second earthquake in New Zealand in February, the Japanese earthquake and tsunami in March and the floods in Thailand beginning in July.

Lloyd’s Chief Executive Richard Ward stated: “Make no mistake, 2011 was a difficult year for the insurance industry. Given the scale of the claims, a loss is unsurprising but it reflects what we’re here to do – help communities and businesses rebuild after disaster.

“It is also reassuring that, despite this loss, our financial strength has been maintained,” he added. “It’s testament to Lloyd’s robust oversight and professionalism in the market today.

However he was disappointed that due to such a high level of catastrophes in 2011, insurance rates have not responded as a result. To us Brokers, this is due to the high capacity that still exists and the intense competition keeping prices down. As always it is interesting why the industry does not show more discipline in terms of premium rates by increasing them accordingly as there is certainly a risk of insurers becoming insolvent if hit too hard by catastrophe claims. Especially as insurers are not getting the returns they once were on the cash reserves they hold. It does demonstrate the Insurance Industry’s resilience.

Lloyd’s Chairman John Nelson pointed out: “The Lloyd’s market has emerged from its largest catastrophe year ever in a strong position. Our strong capital position is unchanged and we were able to make a profit in the second half of the year despite the floods in Thailand and continuing low investment returns.”

He also noted that “2012 remains challenging for insurers with tough economic conditions globally. It is vital that the market continues to take a disciplined approach to underwriting.”

Lloyd’s Annual Report listed the following financial highlights:

Loss before tax of £516 million (AUD$822 million); 2010: profit of £2.195 billion (AUD$3.8 billion).
Combined ratio of 106.8 percent (2010: 93.3 percent) – in line with an estimated average of:
108 percent for US property and casualty insurers;
107 percent for US reinsurers;
105 percent for Bermuda insurers and reinsurers,
101 percent for European insurers and reinsurers.
Total resources of the Society of Lloyd’s and its members at £58.870 billion (AUD$100 billion); 2010: £55.230 billion (AUD$95 billion).
Central assets at £2.388 billion (AUD$4.5 billion); 2010: £2.377 billion (AUD$4.3 billion).
Investment return of £955 million (AUD$1.8 billion); 2010: £1.258 billion (AUD$2.5 billion).
Prior year reserve surpluses of £1.173 billion (AUD$2 billion); 2010: £1.016 billion (AUD$1.8 billion).
Source: Lloyd’s of London