Lloyd’s of London expects $4.5bn in losses from Harvey, Irma

Lloyd’s 80-plus syndicates have already paid out more than $400 million in claims from hurricanes Harvey and Irma. (Reuters)
Updated 29 September 2017
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Lloyd’s of London expects $4.5bn in losses from Harvey, Irma

LONDON: Lloyd’s of London expects net losses of $4.5 billion from hurricanes Harvey and Irma, which analysts said would eat into the insurer’s capital and hit its profitability.
Although losses from natural catastrophes have been low in recent years, including in the first half of 2017, that is set to change in the second half of the year, Lloyd’s chief executive Inga Beale said following Thursday’s results.
“There was limited major claim activity in the first half. There’s a very different second half emerging — it’s not only the hurricanes but we’ve got the Mexican earthquakes, floods in Asia, typhoons in Asia,” Beale told Reuters.
“The hurricane season is still in play, earthquakes can happen at any time,” Beale said as Lloyd’s reported a 16 percent profit fall in the first half of 2017.
Lloyd’s 80-plus syndicates have already paid out more than $160 million in claims from Harvey and more than $240 million from Irma, Beale said. The $4.5 billion net loss estimate was based on modeling of “known exposures,” she added.
“Given that the Lloyd’s of London market typically produces earnings of £2.1-3.5 billion, it is highly likely that the market faces a capital loss,” Jefferies analysts said in a note.
Modelling firm RMS estimates total insured losses from Harvey and Irma of up to $80 billion.
Meanwhile, Beale said it was too early to assess losses from Hurricane Maria, which devastated Puerto Rico last week and which some analysts have predicted will lead to greater insurance losses than Harvey and Irma.
Lloyd’s made £1.22 billion ($1.63 billion) in profit before tax in the six months to the end of June, down from £1.46 billion a year earlier, although Beale said part of the drop in profit was related to currency fluctuations.
Insurance rates have been falling for the world’s largest specialist insurance market and other insurers for several years due to strong competition.
Lloyd’s return on capital worsened to 8.9 percent from 11.7 percent, due to pressure on returns from low interest rates.
Gross premiums rose to £18.9 billion from £16.3 billion last year, and its combined ratio improved to 96.9 percent from 98 percent in 2016. A combined ratio is a measure of underwriting profitability, with a level below 100 percent indicating a profit.
Jefferies said recent natural catastrophes meant that a combined ratio for the year of 112.5 percent for Lloyd’s “is now a possibility,” indicating higher underwriting losses than 2011, which it said was “the last major catastrophe year.”
Lloyd’s was on track to open its planned EU subsidiary in Brussels by the middle of next year, Beale said, adding the new hub would employ “tens” of people and the firm would be submitting its formal license application “very shortly.”
More than 20 insurers have announced plans for EU hubs in the event that Britain loses access to the single market as a result of its departure from the EU.


Gulf airlines Emirates, Etihad, Qatar Airways seen flying under radar at Farnborough Airshow

Updated 15 July 2018
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Gulf airlines Emirates, Etihad, Qatar Airways seen flying under radar at Farnborough Airshow

  • Over 1,500 exhibitors and 100,000 trade visitors are expected to attend this week’s airshow
  • Farnborough and the Paris Airshow — held on alternate years — have accounted for around 30 percent of annual commercial business

LONDON: The aviation industry heads to the UK’s Farnborough International Airshow on Monday in rude health, with higher oil prices and a strong global economy leading to predictions of a large number of orders at the week-long show.
But this time around, significant orders from Gulf carriers such as Etihad, Emirates and Qatar Airways are unlikely to materialize, as the region’s carriers continue to take stock after a period of bruising losses.
Over 1,500 exhibitors and 100,000 trade visitors are expected to attend this week’s airshow, one of the most important events for the global aviation industry.
Farnborough and the Paris Airshow — held on alternate years — have accounted for around 30 percent of annual commercial business for manufacturers like Boeing and Airbus since 2012, according to aviation consultancy IBA Group.
Some $124 billion worth of orders and commitments were placed at the 2016 show, according to organizers.
The aviation industry is in rude health in 2018, with passenger numbers and load factors rising internationally thanks to global economic growth.
Plane makers bagged around 900 firm or provisional orders in Paris last year, the consultancy said. And while the international order backlog is high, a similar number of orders is expected next week on the back of recent rises in the price of oil.
“The trend between oil price and annualized orders has been uncannily strong,” said IBA’s Chief Executive Officer Stuart Hatcher in a report issued July 9.
“This is not surprising given that most orders have been placed for new fuel-efficient technology, but even with such large backlogs in play, orders continue to come in as oil rises.”
This time around however, the big three Gulf carriers — Etihad Airways, Emirates and Qatar Airways — are unlikely to feature too heavily among the big spenders next week, analysts predict.
Etihad Airways made headlines in Farnborough in 2008, when it made $20 billion worth of orders from Boeing and Airbus.
Fast forward 10 years though, and the Abu Dhabi carrier is in consolidation and restructuring mode, its international expansion plan on hold following the insolvency of its European partners Air Berlin and Alitalia.
After posting an annual loss of $1.5 billion for 2017 (albeit an improvement on the previous year), Etihad earlier this month announced a reorganization into seven business units to be accompanied by further job cuts, significantly scaling back its international ambitions.
The main deals the carrier is reportedly working on with manufacturers are attempted price reductions for previously placed orders.
“It’s not the done thing to cancel existing orders at airshows,” said Saj Ahmad, chief analyst at Strategic Aero Research.
Etihad did not respond to a request for comment.
John Strickland, director of JLS Consulting, said the other two big Gulf carriers were also unlikely to splash significant cash at Farnborough.
“It’s probable that any statements by Emirates and Qatar Airways will be more modest,” he told Arab News.
Dubai’s Emirates has fared better than its Abu Dhabi counterpart, reporting a $1.1 billion profit for the year ending March 2018.
Despite the airline’s continuing recovery, recent headline orders from both Boeing and Airbus are tempering the expectations for what will be announced at Farnborough.
“Emirates has placed recent orders for Boeing 787s and more Airbus A380s so large headline orders are unlikely,” said Strickland.
Emirates declined to comment.
Qatar Airways has been hit hard by the boycott of its home market by the Anti-Terror Quartet — Saudi Arabia, the UAE, Bahrain and Egypt — last year, with the group’s CEO Akbar Al-Baker admitting the airline is likely to report a large loss for the past year.
But the company has been in acquisition mode, acquiring a 9.6 percent stake in Cathay Pacific in November for $662 million, and has expanded a number of its routes in recent months.
“Qatar Airways may plump up for more (Boeing) 777Fs as it looks to build its freight capacity in the wake of the (boycott) to alleviate import pressures on goods and services,” Ahmad told Arab News.
IBA forecasts that aircraft leasing firms may dominate Farnborough orders, accounting for between 30 and 50 percent of orders.
Ahmad told Arab News that Dubai-based DAE Capital may be one of the firms preparing to place large orders, with rumors of 100 jets apiece for Airbus and Boeing.
DAE, Airbus and Boeing did not respond to requests for comment.