The Lloyd’s of London insurance market crashed to a first-half loss of £697-million ($1-billion), hit by an unprecedented string of natural disasters led by the Japanese earthquake and tsunami.
The loss compares with a profit of £628-million a year earlier, and reflects a total of £6.7-billion in claims during the first half, making it the costliest six-month period in Lloyd’s 323-year history.
That included £2.7-billion in catastrophe-related claims, more than 10 times Lloyd’s average disaster loss for the first half of the year.
Lloyd’s said it was financially strong enough to cope with a potential further spate of big claims, with central assets - used in the event that individual syndicates are unable to meet their obligations - rising 10 per cent to £2.47-billion.
“We go forwards into the second half of the year as strong as we’ve ever been,” Lloyd’s finance director Luke Savage told Reuters on Wednesday.
Lloyd’s performance over 2011 as a whole will depend on whether the June-to-November U.S. hurricane season inflicts further losses on the industry, and on how its investment portfolio fares as the euro zone sovereign debt crisis continues to unsettle financial markets, Mr. Savage said.
Lloyd’s has been gradually withdrawing maturing cash deposits away from banks in heavily-indebted peripheral euro zone countries since the onset of the crisis a year ago, Savage added, declining to say how much has been moved.
“The cash by and large is placed with high credit quality banks, we’re not using peripheral country banks,” he said.
Lloyd’s directly manages about £6.5-billion of the market’s total asset base of £57-billion, and 3 per cent of this was held in cash at the end of June.
Many European and U.S. insurers have reported steep half-year losses because of a run of natural disasters between January and May, which also included an earthquake in New Zealand, flooding in Australia, and tornadoes in the United States.
“I would expect to still see some positive (full-year) profit from some of the companies that have managed the risk correctly,” said Espirito Santo analyst Joy Ferneyhough.
“We haven’t really had much U.S. hurricane activity, so there is every opportunity to earn back some of the losses for the first half.”
The 2011 hurricane season so far has been the most active on record, but with the exception of Hurricane Irene, expected to cause an insured loss of up to $5.5-billion, no major windstorm has hit the U.S. mainland.
This year already ranks as the second most destructive on record for catastrophe losses after 2005, with the insurance industry absorbing $70-billion in claims in the first six months alone, according to Swiss Re , the world’s No.2 reinsurer.
The sector had hoped that the catastrophe hit would force some players to retrench, easing competitive pressure and reversing a four-year decline in prices.
However, insurers now expect prices to be broadly flat, barring an increase of up to 15 per cent for catastrophe-related business, when customers renew their polices in January.
Lloyd’s, which traces its origins to a 17th century coffee house where merchants met to insure ships, said its investment income for the first half fell 9 per cent to £548-million in the first half amid record low interest rates.
The market, made up of about 80 competing insurance and reinsurance syndicates, conservatively allocates its assets equally between cash, government bonds, and high-rated corporate debt to ensure it can meet policy holder claims.
Last month, Catlin , operator of the biggest Lloyd’s syndicate, reported a first-half loss of $201-million, while rivals Amlin and Hiscox unveiled deficits of £192.3-million and £85.6-million, respectively.