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Lloyd’s of London Struggles to Raise Rates After Worst Year

Lloyd’s of London Struggles to Raise Rates After Worst Year
The exterior of the Lloyd's of London building is seen in the City of London. Photographer: Matt Lloyd/Bloomberg

Lloyd’s of London, the world’s oldest insurance market, is struggling to raise premium rates even after the worst year for natural catastrophe claims on record, Chief Executive Officer Richard Ward said.

Lloyd’s posted a pretax loss of 516 million pounds ($823 million) in 2011, compared with a 2.2 billion-pound profit in 2010, it said today in a statement. The loss is the biggest since the terrorist attacks on New York in 2001 and the first since 2005, when Hurricane Katrina struck New Orleans.

Lloyd’s insurers are seeking to boost premium rates after earthquakes in Japan and New Zealand, windstorms in the U.S. and flooding in Thailand cost insurers about $105 billion last year. That made 2011 the industry’s most expensive year on record, surpassing the $101 billion paid out in 2005, according to Munich Re. Lloyd’s lost 103 million pounds in 2005.

“Rates will need to increase to be able ensure that insurers over the length of the cycle are able to deliver a sustainable profit,” Ward said in an interview with Bloomberg Television today. “It won’t happen across all classes.”

Insurers including Amlin Plc and Catlin Group Ltd. said in February rates may rise between 4 percent and 17 percent as a result of the losses. Ward said these rises are not enough.

“I am disappointed that, given the exceptional level of catastrophes in 2011, insurance rates have not responded more positively,” Ward said. “These events demonstrate the need for the industry to show discipline in terms of pricing.”

Little Changed

Premiums for property treaty policies, which typically cover assets against catastrophes outside the U.S., and U.K. motor policies rose in the “low double digits” this year compared with 2010, according to Finance Director Luke Savage. Energy coverage was up 7 percent while aviation, marine and casualty rates were little changed, he said.

Lloyd’s paid out 1.07 pounds in claims for every pound it took in premiums last year, compared with 93 pence in 2010, it said in the statement. That’s in line with U.S. property and casualty insurers and Bermudian reinsurers, it said.

Typically when insurers make losses their capital is eroded, meaning they have to take less risk and raise prices in the following years. It’s proving difficult to raise prices because the industry is awash with excess capital, Savage said in a telephone interview.

“So long as there remains a significant amount of excess capital it’s hard to see rates turning across the board,” Savage said. Weak returns elsewhere in the economy mean property and casualty insurance is still seen as an “attractive” sector to invest, leading to high capital reserves and low rates, he said.

The market’s central assets, a reserve for insurers who fail to meet claims, rose 0.5 percent to 2.39 billion pounds during 2011, Lloyd’s said.

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