Lloyd’s of London, the world’s biggest insurance market, has started paying out the first of $4.5bn (£3.6bn) of claims related to tropical storm Harvey and Hurricane Irma, which wreaked havoc in the southern US and Caribbean.
Inga Beale, the Lloyd’s of London chief executive, said: “The market is assessing claims and starting to make payments that will help local communities and businesses get back on their feet as quickly as possible.”
Catastrophe modelling companies have estimated the insured damage caused by Harvey and Irma at $50bn to $70bn (£37bn-£52bn). Hurricane Maria, which recently ripped through Puerto Rico, is estimated to have caused $40bn-$85bn in insured losses.
Beale said Lloyd’s was using those estimates to work out its share of the losses, about $4.5bn for Harvey and Irma. The market is still working out its liability for Hurricane Maria, the earthquake in Mexico and typhoons in Asia.
Analysts at Jefferies estimate a further $1bn hit for Maria and the Mexican earthquake. They expect that Lloyd’s has the capital to absorb these losses without drawing on its central reserves. The cost of property insurance cover in the US is likely to rise “materially” as a result, but Asian prices should be unaffected.
“It is clear that 2017 is a major catastrophe year,” said Simon Kilgour, an insurance partner at the law firm CMS. “The current-year losses are expected to wipe out industry earnings and impact capital for the first time since 2005.”
Lloyd’s is closely monitoring the impact of climate change. Beale said rising sea levels raised the losses caused by Hurricane Sandy in 2012 by 30%.
Another big challenge is Brexit. As part of its planning, Lloyd’s is about to file an application with the Belgian authorities to set up a subsidiary in Brussels. Beale said this was “a bit more complex” for a market with 83 syndicates than it would be for an individual company, but she still expects the new subsidiary to be up and running by the middle of 2018.
Beale welcomed Theresa May’s plan for a two-year transition period. “The transition would be very helpful for the financial services sector,” she said.
While the Brussels subsidiary will ensure that Lloyd’s can write new business in EU countries after the UK leaves, Beale stressed that it was vital for insurers to be able to fulfil their liabilities for existing policies, adding that the outlook was “still very uncertain”.
Lloyd’s has thrown its weight behind proposals for a free trade agreement for financial services that would ensure UK and EU companies can trade in each other’s countries without tariffs or quotas.
Beale’s comments came as Lloyd’s reported a pretax profit of £1.2bn for the first half of this year, down from £1.46bn a year ago. It excludes the impact of the storms and other recent natural disasters.
This article was written by Julia Kollewe, for theguardian.com on Thursday 28th September 2017 14.25 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010