The insurance industry can bounce back from the string of natural disasters that left it nursing its second-highest claims bill last year, according to the boss of the Lloyd's of London insurance market.
Richard Ward said insurers had the financial strength to stomach claims that are forecast to hit $108 billion after a year in which the globe was rocked by the Japanese tsunami, New Zealand earthquakes and floods in Thailand. Forecasts by reinsurer Swiss Re put the cost of that trio of natural disasters at $35 billion, $12 billion and up to $11 billion respectively.
"These are big numbers," Ward said. "And yet people are not questioning our financial viability and they are not questioning our ability to pay our claims."
Add in the floods in Australia and the cost of Hurricane Irene, which hit the Caribbean and American east coast in August, and 2011 comes second only to 2005. In that year, Hurricanes Katrina, Wilma and Rita helped generate $123 billion in insured losses, according to Swiss Re. The string of disasters meant that Lloyd's fell to a £697m pre-tax loss in the first half of 2011, compared with a £628m profit a year earlier.
"Why was the loss that small when we were dealing with the costliest six months on record?" said Ward. "Two things: firstly, we have a far better understanding of the risks we are running in the business, and secondly we have the right capital to support it."
Last year is also set to dwarf 2001, previously the second-costliest year for the industry after the terrorist attacks on the World Trade Center in New York. Ward believes that Lloyd's geographic diversity has helped it to cope. Some 45 per cent of its business is in North America, with 20 per cent in Britain, 15 per cent in continental Europe and 20 per cent in the rest of the world.
"The reality is the premiums from the UK and US are in effect helping with claims from the Far East but we are an international business so that is bound to happen. We need that diversity of business and we are working on the assumption that it doesn't happen all at the same time."
The 300-year-old insurance market is also expected to have a record level of premium writing capacity this year. An annual survey of companies at Lloyd's by Insurance Insider found that capacity is expected to have risen to £23.7 billion from £23.3 billion last year.
However, soaring claims have sparked takeover talks between a number of Lloyd's insurers. Beazley said just before Christmas that it might try to buy Hardy Underwriting, a year after an initial approach for its smaller rival fell through. In the same week, Bermudan reinsurer Haverford ended talks to buy a stake in Omega after the two sides failed to agree on a price.Reuse content