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Lloyd’s Insurers’ Profits May Drop 37% on New Zealand Earthquake

Lloyd’s of London’s three biggest insurers, Amlin Plc, Hiscox Ltd. and Catlin Group Ltd., may post declines in annual pretax profit of at least 37 percent after earthquakes in Chile and New Zealand eroded profits from a year without losses from a major U.S. hurricane.

“It’s unusual in that it was quite a bad year for insured losses even though the U.S. hurricane season was benign,” said Thomas Dorner, a London-based analyst at Oriel Securities Ltd. and the top-ranked non-life insurance analyst according to data compiled by Bloomberg. “The first half of the year was among the most costly in history, and there were further attritional losses in the second.”

Lloyd’s insurers have sought to write more policies outside the U.S. to cut potential losses from the North Atlantic hurricane season after Hurricane Katrina and Hurricane Ike erased profit in 2005 and 2008. February’s earthquake in Chile and September’s in New Zealand cost insurers worldwide a combined $14 billion, according to company estimates. Amlin, Hiscox and Catlin’s losses from the quakes totaled about $700 million.

Chile’s 8.8 magnitude earthquake in February 2010, which killed 520 people, cost insurers about $8 billion, making it the eighth most expensive natural disaster on record and the most costly outside the U.S., according to Munich Re, the world’s biggest reinsurer.

New Zealand

Amlin and Catlin both raised their loss estimates for New Zealand’s earthquake, which damaged more than 100,000 homes in and around Christchurch, the country’s second-largest city.

BP Plc’s Deepwater Horizon spill in the Gulf of Mexico in April cost the three insurers a further $70 million, according to company estimates. The Deepwater Horizon oil rig explosion, which killed 11 people in April, will cost insurers between $4 billion and $6 billion, according to New York-based research firm Towers Watson & Co.

Lloyd’s insurers, which insured the rig owned by Transocean Ltd., will pay as much as $600 million in claims, Chief Executive Officer Richard Ward said in July. The majority of the clean-up costs are being paid by London-based BP, which operated the oil well.

Still, losses haven’t been big enough to prompt insurers to boost their prices. Rates fell 7.5 percent in 2010, according to Guy Carpenter & Co. The London-based broker said “high levels of industry surplus” capital will cause rates to drop further this year.

Beazley Earnings

After paying out $62 billion in claims after Hurricane Katrina, which devastated New Orleans in 2005, insurers raised capital to take advantage of an anticipated increase in rates. Since then, competition and a lack of similar losses led U.S property and casualty rates to drop for 27 consecutive quarters, according to the Council of Insurance Agents and Brokers.

Beazley Plc, the fifth-biggest Lloyd’s insurer by market value, will begin the 2010 reporting season by posting results on Feb. 8. The insurer is likely to buck the trend of its rivals because it had lower 2009 earnings relative to its peers, according to Nicholas Johnson, a London-based analyst at Numis Securities Ltd. That year, the insurer recorded losses on trade credit insurance and posted larger unused catastrophe reserves that suppressed profits, he said.

Beazley will likely say pretax profit climbed 34 percent to 134 million pounds ($216 million), according to the median estimate of six analysts surveyed by Bloomberg. Net income may rise 16 percent to 102 million pounds, they said.

Catlin will publish its 2010 results on Feb. 10, followed by Hiscox on Feb. 28 and Amlin on March 2. Following is table of estimates for the four insurers.

                    Amlin     Hiscox    Catlin    Beazley
                    (GBP)      (GBP)     (USD)     (GBP)

Pretax Profit
2009                509m       321m      603m       100m
Pretax Profit
2010 (est.)         260m       197m      379m       134m
% Change            -49%       -39%      -37%       +34%
Analysts            15         14        15         6

Net Income
2009                455m       280m      509m       88m
Net Income
2010 (est.)         207m       156m      286m       102m
% Change            -55%       -44%      -44%       +16%
Analysts            11         10        11         4

2009                0.2        0.16      0.4        0.7
2010 (est.)         0.22       0.165     0.41       0.74
% Change            +10%       +3%       +3%        +6%
Analysts            17         17        17         6

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