Storms Cut Lloyd's Profits,

But Prompt Capacity Boost

Expectations earlier this year that Lloyd's would end 2005 on a comfortably profitable note have been diminished by the three catastrophic hurricanes that hit the United States, but prices and capacity will rise unexpectedly as a result.

The Lloyd's market estimates the total net loss from Hurricanes Katrina, Rita and Wilma could amount to ?2.9 billion ($5.2 billion at current exchange rates).

In the first half of the year, the market expected to make a substantial profit, and even after Katrina felt it could still run in the black, noted Winifred A. Baker, president and director of Lloyd's America Inc.

However, after Rita and Wilma, the market believes that if there are no more catastrophes through the end of the month, Lloyd's could see an overall profit–though very small, she added.

“Three large hurricanes have taken their toll,” she said. “We are in the business of insuring risk, and we won't know our results until we close our books on Dec. 31.”

Lloyd's said the market remains financially strong and it expects to meet all of its liabilities with immaterial impact on its Central Fund, which covers claims that syndicates cannot pay. Lloyd's added that there is nothing to suggest any syndicate would be unable to continue as a result of the hurricanes. The syndicates will be supported by capital from members of over ?9 billion ($15.5 billion) in 2006, an increase of ?500 million ($863 million) from what was originally planned for the year.

Ms. Baker said that because of soft market pricing prior to the hurricanes, there were plans to decrease capacity, but the storms have altered the market cycle. Instead, capacity will be increased by 7 percent, to ?14.7 billion ($25 billion).

The U.S. market, she said, is very stable and in good shape going into next year. “There are no issues in the U.S.,” she added.

Infographic, with Lloyd's pix:

Flag: Damage Report

Head: Hurricanes Hit Lloyd's

The trio of hurricanes that hammered the U.S. in the second half did some serious damage to Lloyd's bottom line. Net losses were:

o Katrina–?1.9 billion ($3.42 billion).

o Rita–?535 million ($947 million).

o Wilma–?483 million ($855 million).

o Total–?2.9 billion ($5.2 billion).

Special Reports /

Storm Losses Cut Lloyd's Profits But Prompt Boost In Capacity

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