The Lloyd's of London insurance market revealed that record claims from disasters including the Chilean earthquake and US oil spill halved its profits, and said it saw no respite from a steady decline in prices.
Lloyd's, which traces its origins back 322 years to a London coffee house where wealthy merchants insured ships, has posted a pretax profit of £628m ($994m) for the first half of 2010, down from $1.32bn a year earlier.
Lloyd's, a cluster of competing insurance syndicates which specialise in covering large-scale risks, said it had to absorb more claims in the first half than in any other six-month period.
The market was also hit by a 15 percent drop in investment returns as it switched to safe low-yielding assets in the face of volatile financial markets.
Property and casualty insurers worldwide have reported bumper claims in the first half of the year, with reinsurer Munich Re estimating total insured losses over the period at $70bn, exceeding the total for all of 2009.
Insurers have had to pick up the bill for heavy storms in Europe and Australia as well as the Chilean earthquake and Gulf of Mexico oil spill, while some Lloyd's insurers have been hit by a sharp rise in UK motor insurance claims.
The industry is also struggling with falling prices amid intense competition between insurers holding abundant supplies of capital after a relatively low volume of claims in 2009.
Lloyd's finance director Luke Savage said prices looked set to keep falling, and most of the syndicates operating in the market would probably respond by writing less business next year.
“At the moment there is nothing that would lead us to believe that (prices) are going to improve generally. In an environment of slowly declining rates, people are going to be slowly reining in the amount of premium they write,” he told reporters.
Lloyd's, which competes with Munich Re and Swiss Re as well as Bermuda-based insurers and reinsurers, is considering opening an office in Russia, adding to its existing overseas bases in China, Singapore, Japan and Brazil, Savage added.
Analysts say the most likely catalyst for an upturn in prices would be a US hurricane causing $30-$50bn in insured losses. The US hurricane season, which ends in November, has so far caused only moderate damage.
Listed insurers operating in the Lloyd's maket including Amlin, Catlin, Hiscox and Lancashire have also reported lower interim profits on the back of higher claims.
Lloyd's had a combined ratio – a key measure of profitability which expresses costs and claims as a percentage of premium income – of 98.7 percent in the first half of 2010, compared with 91.6 percent a year earlier.
A reading below the 100 percent breakeven point denotes an underwriting profit.