Daily briefing: Monday - Confidence boost needed

The world economic outlook has deteriorated sharply in recent weeks, and general insurance is not immune. As predictions for a double-dip recession abound, the latest Business Confidence Monitor index has shown that confidence in the insurance, banking and finance sector is at its lowest level since the first quarter of 2010. This will be unwelcome news for a sector that, despite relatively healthy first-half results, is still seeing volatility in its stock prices.

Explaining the downward trend in confidence, Peter Allen, head of the financial services group at Grant Thornton, which produces the report, pointed to this year’s unprecedented run of catastrophe losses.

Heavy losses at Lloyd’s

Nowhere have these hit harder than in Lloyd’s, where carrier after carrier has reported stinging losses in this month’s first-half results. Today, Amlin outdid its peerswith the worst results yet – a loss after tax of £151.m, compared to a profit of £84.5m in the same period last year. The company’s loss before tax was even higher, at £192.3m and its combined operating ratio an eye- watering 121%.

It looks bad – but let’s put it in perspective. Insured losses for the first half of 2011 were almost five times more than the average since 2001, according to Munich Re. 2011 is the highest loss year on record, with $265bn of economic losses so far. This already outdoes the $220bn of economic losses in 2005 – the year of Hurricane Katrina.

So Amlin and its Lloyd’s brethren can hardly be condemned for this half-year’s exception results. All Lloyd’s underwriters are robust businesses by their very nature, and built to withstand exceptional losses. They will now be hoping to push rates up in reaction to the losses, but outside catastrophe lines, this remains far from a certainty, thanks to the excess capital that is still sloshing around.