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Lloyd’s of London said it expected to lose $2.3bn from the Californian wildfires that ravaged Los Angeles in January, as it warned that higher incidences of natural catastrophes were likely to keep insurance costs high.
Chief financial officer Burkhard Keese told the Financial Times that losses from disasters such as hurricanes and floods, as well as geopolitical risks, would continue to weigh on the specialist marketplace, as it reported a drop in underwriting profit last year.
Lloyd’s combined ratio — a closely tracked measure of claims and expenses as a proportion of premiums — rose to 86.9 per cent in 2024, from 84 per cent in 2023, as insurers faced major claims from US hurricanes Helene and Milton and the collapse of a bridge in Baltimore. Any result over 100 per cent constitutes an underwriting loss.
Its underwriting profit fell to £5.3bn, down from £5.9bn in 2023.
The institution, a marketplace where more than 50 insurers and reinsurers agree to underwrite risks for businesses, had delivered its best underwriting performance since 2007 in 2023, due in part to a quiet year for hurricane claims as well as a sustained rise in reinsurance prices.
But insurers lost about $140bn from natural disasters last year, making it the third most expensive year on record for the industry since 1980, according to Munich Re.
Keese told the Financial Times that “man-made” and natural catastrophe losses were likely to keep the cost of commercial cover higher for longer. That is despite expectations that some speciality insurance and reinsurance prices would come down this year, in part after losses from US hurricanes dipped due to milder storm seasons.
“People get carried away. They have two years of lower than expected catastrophe events, and then they say: ‘Oh, we are all getting rich.’ No, you won’t,” he said. “You should not expect that.”
Insurers are facing billions of dollars in losses from the LA wildfires, despite several of California’s largest insurance carriers cutting back their exposure before the catastrophe.
Following the January blazes, Keese said Lloyd’s expected to pick up more business in the US’s growing non-admitted market for speciality insurance, which is less regulated and can charge higher prices.
The concentration of rich residents in the affluent neighbourhood of Palisades had led some market participants to suggest that losses from fine art could exceed those from conventional property. But most of Lloyd’s exposure stemmed from reinsurance payouts on home insurance policies, Keese said.
“That’s a big surprise. Everybody expected a lot of loss in fine art,” Keese said. However, he said: “People take fine art with them, because even if you get the money, you can’t replace your Rembrandt.”
Lloyd’s had set aside more reserves to cover losses from the Ukraine war, Keese said. He added that the marketplace’s lower profits last year did not include a recent string of plane crashes, where losses might be covered by governments.
Keese added that insurance for political violence and terror was currently underpriced, warning of the risk of increased volatility linked to US President Donald Trump, as well as geopolitical tensions in the Middle East, South America and elsewhere.
“Heightened political risk must lead to higher rates,” he said.
