Natural disasters take toll on insurance industry
Insurance market Lloyd's of London reported a sharp fall in profits due to the impact of the Chile earthquake and the Gulf of Mexico oil disaster.
The first six months of the year were the costliest in the six years that Lloyd's has published interim figures, but chairman Lord Levene said a profits haul of £628m showed the strength of the market, particularly as it also faced challenging investment conditions and softening rates.
The specialist insurance market, which is made up of 85 underwriting syndicates, reported profits of £1.32bn a year earlier.
Net claims from the Chile earthquake are likely to be around $1.4bn (£884m), while the estimate for the Deepwater Horizon explosion is between $300m (£378m) and $600m (£189m).
The majority of the exposure relates to the loss of the oil rig.
The Lloyd's market has shown in recent years that it is more than able to cope with major catastrophes, including hurricanes.
Among recent changes to modernise the market, Lloyd's introduced a new franchise structure and phased out the number of Names who backed the market with an unlimited liability.
And reflecting its focus on underwriting for profit, its combined ratio - the industry measure of profitability - is still below the level of 100% that represents break-even.
Lloyd's said its combined ratio of 98.7% in the first six months of the year compared with 91.6% a year earlier but still represented a solid performance compared to its peers.
Lord Levene added: "While events such as the Chilean earthquake and the Deepwater Horizon loss have proved challenging, paying these claims and supporting our policy holders is what we are here to do."
The reinsurance industry has experienced one of its toughest starts to a year since 1994 amid signs that the earthquake in Chile will become the second most expensive to insurers on record.
Lloyd's said its conservative investment mix resulted in a return of £597m, compared with £708m a year earlier.
The vast majority of its investments are in cash, government bonds or highly rated corporate bonds.
Lloyd's solvency position improved on a year ago, with central assets standing at £2.2bn.