Lloyd's of London swings to second-worst loss on calamities

The Lloyd's of London insurance market swung to its second-biggest loss last year after absorbing record claims from natural catastrophes including Japan's Tohoku earthquake and floods in Thailand.

Lloyd's, which traces its origins back 324 years to a London coffee house where merchants met to insure ships, made a loss of 516 million pounds ($824 million), it said on Wednesday, compared with a £2.2 billion profit in 2010.

The loss, reflecting the aggregate financial performance of 80 competing insurance syndicates that make up the Lloyd's market, was second only to the £3.11 billion deficit it reported for 2001 following the September 11 attacks.

"Make no mistake, 2011 was a difficult year for the insurance industry," chief executive Richard Ward said in a statement. "Given the scale of the claims, a loss is unsurprising."

Lloyd's incurred £4.6 billion of natural disaster-related claims during 2011, the highest on record, taking total payouts for the year to £12.9 billion.

Last year was the insurance industry's second-costliest for catastrophes, with earthquakes, floods and tornadoes generating total claims of $116 billion, according to Swiss Re, the world's No.2 reinsurer.

That was surpassed only by an insured loss of $123 billion in 2005, when Hurricane Katrina devastated New Orleans.

Ward said he was disappointed that insurance prices, which have been declining or stagnant across much of the market since 2008, had not risen more convincingly in response to last year.

Insurance prices typically climb in the wake of large payouts by the industry as financially weaker players retrench, easing competitive pressures and freeing those still in the market to charge more.

However, significant increases this year have been confined to directly catastrophe-related lines of business, with prices across the broader market rising only moderately, insurers and brokers have said.

Lloyd's finance chief Luke Savage said a steady influx of capital into the industry from investors looking for a safe haven amid depressed financial markets had suppressed the market's traditional pricing mechanism.

"In an environment where investment returns are at record lows, even with the soft rates we are currently seeing in the insurance industry, it is still an attractive place to park your capital," he told Reuters in an interview.

Weak investment yields, reflecting rock-bottom interest rates and strong demand for high-quality government bonds, also took their toll on Lloyd's last year, with total returns on its portfolio falling 24 per cent to 955 million pounds.