In recent years, the Property Direct and Property Treaty accounts have made the largest contribution to Lloyd’s overall profits. This is partly due to the response to 9/11, which forced the global underwriting community to recognise not only the aggregations of exposures on its books, but also that the underlying profitability of the risks assumed was inadequate to generate acceptable returns on the capital employed. As a result, there were dramatic changes to pricing and to the terms of coverage offered. The underwriting years 2002 and 2003 reaped the benefits of strong pricing, as well as enjoying an unusually benign loss environment. So the 2004 calendar year result benefited from the flowing through of the earned premiums from these years; but this was counterbalanced by the increase in catastrophic losses mentioned.

Four hurricanes, over 1.5m claims

It’s over 20 years since four or more named hurricanes made landfall in a single US state and the phenomenon of two major hurricanes crossing each other’s paths in one state is an exceptionally rare occurrence. The scale of the devastation wrought by Charley, Frances, Ivan (whose impact was most acute in the Gulf of Mexico and in Alabama) and Jeanne was unprecedented and surpassed, in aggregate, the financial impact of Florida’s last major disaster, Hurricane Andrew, in 1992. It is estimated that more than 20% of all homes in Florida were damaged by these storms and over 1.5m individual claims will be settled, three times the number that arose from Andrew. The global insurance community will meet policyholders’ claims which ultimately are estimated to total approximately $25bn.

A challenge to adjust

A surge in demand, caused by the pressure on contractors and materials required to repair and rebuild, forced prices up and hence the cost of claims. A further expensive complication arose from the shortage of qualified loss adjusters in the southern US states. Hundreds of adjusters had to be flown in from all over the USA and even Canada to help insurers and policyholders determine the correct indemnities to be paid. Where the paths of hurricanes Frances and Jeanne crossed, it was particularly difficult to determine which storm caused what damage.

The Asian tsunami

Boxing Day 2004 will be remembered for the appalling loss of life caused by the Asian tsunami. The impact on the insurance industry pales beside the human toll, but there are thousands of claims to be resolved, with diligence and compassion. The destruction of holiday resorts and hotels and the consequent disruption of the region’s vital tourist industry will account for the bulk of the property–related claims since sadly much of the local population’s property would not have been insured.

The results achieved in Lloyd’s property book are a clear reflection of how strong the underlying underwriting conditions were since, despite these loss events, underwriting profits were still achieved. These losses have been more than offset by the profits generated on the remainder of the property book from risks written all over the world.