Lloyd’s Ups Hurricane Losses to $3.27 Billion; Increases 2006 Capacity

Lloyd’s has issued an updated statement on the estimated financial impact on the market of Hurricanes Katrina, Rita and Wilma, based on the results gathered from “a Major Loss Return from each Managing Agent.” Lloyd’s also gissued a first estimate of the market’s capacity for 2006, based on the outcome of the business plans put together by syndicates following the hurricanes.

Net losses from Katrina are now estimated at £1.9 billion ($3.27 billion)*. The provisional estimate was £1.4 billion ($2.55 billion – at the time) given by Lloyd’s on September 14. The bulletin noted that those estimates had been based on “the very limited information available at the time.” The net loss from Rita is estimated at £535 million ($921 million), and from Wilma at £483 million ($855 million).

Lloyd’s said that as a result, “the chances of the market making a profit in 2005 are now small.” However, the announcement stressed that “the Lloyd’s market remains financially strong. The market expects to be able to meet all its liabilities with immaterial impact on the Central Fund. Further there is nothing to suggest that any syndicate will be unable to trade forward as a result of the hurricanes. Syndicates will be supported by capital from members of over £9 billion [$15.5 billion] in 2006, an increase of £500 million [$860 million] on the original plans for next year.”

Lloyd’s also noted: “A number of syndicates revised their 2006 business plans following the hurricanes to take account of an improving rating environment in catastrophe-related classes. Lloyd’s Franchise Performance team analysed the changes to be satisfied that those planning to write increased business in 2006 remained focussed on returning an underwriting profit. Those plans have now been approved.

“As a result, the Lloyd’s market expects to have the capacity to write approximately £14.7 billion [$25.3 billion] of business in 2006, an increase of 7 percent on this year. This contrasts with the position before the hurricanes, with rates softening, when it was expected that Lloyd’s capacity would reduce by around 7 percent next year.”

Luke Savage, Lloyd’s Director of Finance and Risk Management commented: “Lloyd’s is financially robust. All businesses in the market expect to be able to meet their liabilities from the hurricanes. Any impact on the Central Fund will be immaterial. This is clear evidence of the progress Lloyd’s has made over 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.

“Before the hurricanes struck it was expected that Lloyd’s capacity would reduce in 2006. The planned increase reflects the change in market conditions and is an appropriate response from the market.”

*The exchange rate of $1.7215 to one £ is slightly lower than Lloyd’s conversion figure used in its announcement, as the pound has fallen slightly against the dollar.