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

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.


UK economy faces long climb back to health

Updated 11 min 19 sec ago

UK economy faces long climb back to health

  • Wave of job losses feared after data shows record 20 percent economic hit

LONDON: Britain’s economy shrank by a record 20.4 percent in the second quarter when the coronavirus lockdown was tightest, the most severe contraction reported by any major economy so far, with a wave of job losses set to hit later in 2020.

The scale of the economic hit may also revive questions about Prime Minister Boris Johnson’s handling of the pandemic, with Britain suffering the highest death toll in Europe. More than 50,000 UK deaths have been linked to the disease.

“Today’s figures confirm that hard times are here,” Finance Minister Rishi Sunak said. “Hundreds of thousands of people have already lost their jobs, and sadly in the coming months many more will.”

The data confirmed that the world’s sixth-biggest economy had entered a recession, with the low point coming in April when output was more than 25 percent below its pre-pandemic level.

Growth restarted in May and quickened in June, when the economy expanded by a monthly 8.7 percent — a record single-month increase and stronger than forecasts by economists in a Reuters poll.

However, some analysts said the bounceback was unlikely to be sustained.

Last week the Bank of England (BoE) forecast it would take until the final quarter of 2021 for the economy to regain its previous size, and warned unemployment was likely to rise sharply.

Any decision to pump more stimulus into the economy will hinge on the pace of growth in the coming months, and whether the worst-hit sectors such as face-to-face retail and business travel ever fully recover.

The second-quarter gross domestic product (GDP) slump exceeded the 12.1 percent drop in the euro zone and the 9.5 percent fall in the United States.

Some economists said the sharper decline partly reflected the timing of Britain’s lockdown — which fell more in the second quarter — and its dependence on domestic consumer spending.

Suren Thiru, an economist with the British Chambers of Commerce, said the recent pickup probably only reflected the release of pent-up demand rather than a sustained revival.

“The prospect of a swift ‘V-shaped’ recovery remains remote,” he said.

Britain’s unemployment rate is expected to jump when the government ends its huge job subsidy program in October.

Sunak said he saw “promising signs” in GDP data for June and reiterated his opposition to extending the program. In July he cut sales tax for the hospitality sector and in August is subsidising restaurants to draw in diners.

Hotels and restaurants did just one fifth of their normal business in June, when the lockdown was still largely in force.

British GDP shrank by 2.2 percent in the first quarter of the year, reflecting the lockdown that started on March 24.