Chances of 2005 profit slim, as 2006 capacity up 7% to £14.7bn
Losses to the Lloyd’s market from the trio of devastating hurricanes this year will top $5bn, according to latest estimates revealed on 30 November.
The Society also admitted that the likelihood of turning a 2005 profit was now “small” and announced 2006 capacity would increase to £14.7bn ($26.5bn).
In its statement to the London Stock Exchange, Lloyd’s said the net loss estimate for Katrina had risen to $3.42bn (£1.9bn) from the $2.55bn (£1.4bn) provisional figure provided on 14 September.
It also gave its first estimates of the impact from hurricanes Rita and Wilma, with net losses of $947mn (£535mn) and $855mn (£483mn) respectively.
Based on submitted major loss returns from each managing agent, the total of $5.22bn (£2.9bn) equates to around 6.5 percent of the $80bn widely recognised as a realistic total of insured losses arising from the hurricanes.
Despite fears stoked by recent admissions by Wellington and Advent that they had burned through reinsurance covers as they announced hiked loss estimates, Lloyd’s said the world’s oldest insurance market “remains financially strong”, adding that claims will be paid with “immaterial impact” on the Central Fund. It also reaffirmed previous statements that no individual syndicate was expected to be unable to trade forward as a result of hurricane losses.
Lloyd’s director of finance and risk management Luke Savage said robustness of the market was testament to the progress made by the Society in recent years.
“The events of the past few months have shown that the determined focus at Lloyd’s on underwriting discipline has not come at the expense of the market’s ability to react speedily and flexibly to the opportunities brought about by changing conditions,” he commented.
Capacity hike: 'appropriate response from market'
Savage, who will be acting chief executive of Lloyd’s when the current chief executive Nick Prettejohn steps down at the end of the year, said the 7 percent increase in capacity for 2006 from this year’s £13.7bn “reflects the change in market conditions and is an appropriate response from the market”.
Before the hurricanes, the market’s 2006 capacity had been expected to shrink by around 7 percent as the Franchise Performance Directorate anticipated a softening rating environment.
But with the prospect of considerable rate rises in lines directly impacted by the storms, and knock-on hardening in other areas, a number of Lloyd’s syndicates resubmitted business plans with pre-emptions replacing de-emptions.
Although the £14.7bn 2006 capacity figure fails to top the £15bn record set in 2004, it represents an increase of around 15 percent, or £2bn on the total expected prior to the hurricanes.
Syndicates will be backed by more than £9bn of capital in 2006, said Lloyd’s, an increase of £500mn on the pre-hurricanes plans for next year.
Nevertheless, the response to the prospect of post-hurricane opportunity is relatively modest in comparison to that displayed by the Bermudian market, with the island’s existing players raising around $6.65bn in “restoration capital”, and the "Class of 2005" start-ups looking to raise at least this again.