Lloyd’s of London Swings Into Profit as Claims Decline

Lloyd’s of London, the world’s oldest insurance market, swung into profit last year as costs linked to Hurricane Sandy failed to exceed claims in 2011.

The full-year pretax profit of 2.77 billion pounds ($4.2 billion) compared with a 516 million-pound loss in 2011, the London-based market said today in a statement. Lloyd’s central fund, which pays claims if an insurer fails, rose 4.1 percent to 2.5 billion pounds.

Sandy, which struck the east coast of the U.S. in October and was the third-most costly natural disaster on record according to Munich Re, cost Lloyd’s $2.2 billion, about 10 percent of the industry’s total loss. Lloyd’s paid 10.1 billion pounds in claims in 2012, down from 12.9 billion pounds in 2011, following earthquakes in Japan and New Zealand, and flooding in Thailand.

“The Lloyd’s market has posted a strong result,” Chief Executive Officer Richard Ward said in a statement.

The market paid out 91.1 pence in claims and operating expenses for every pound it took in premiums, indicating an underwriting profit, it said. That compares with 107 pence for U.S. property and casualty insurers, 91 pence for Bermudan insurers and 98 pence for European insurers and reinsurers, Lloyd’s said.

Premiums rose 9 percent to 25.5 billion pounds in 2012, in part due to a 3 percent increase in rates following the disasters of 2011, Lloyd’s said.

Surplus Capital

Insurers such as Hiscox Ltd. and Beazley Plc are returning capital to shareholders by paying special dividends after profits increased in 2012. That’s evidence that insurers are becoming more responsible and aren’t chasing sales at the expense of profitability, Luke Savage, Lloyd’s finance director, said in an interview.

“They’re not flooding the industry with surplus capital that would otherwise drive prices down and make the industry uncompetitive,” he said. “Historically this is an industry that’s highly cyclical and would go from boom to bust. It’s encouraging that in recent years it’s been far more disciplined.”