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Law360, London (March 31, 2021, 10:44 AM BST) -- Lloyd's of London said on Wednesday that its members paid out £6.2 billion ($8.5 billion) to policyholders in 2020 from claims linked to the COVID-19 pandemic, as the market's losses were further compounded by natural catastrophes and Brexit.
The specialist insurance market said it was partly shielded by its reinsurance, which took on some of the claims costs, although nevertheless it recorded a loss of £900 million last year.
The loss is much greater than a prediction last May that the pandemic would cost the market $4.3 billion in payouts on claims. It also exceeds the $4.8 billion it paid out following the 9/11 New York terrorist attacks in 2001.
"Following an extremely challenging year, marked by a global health crisis of a scale never seen before, Lloyd's continued to support its customers," John Neal, Lloyd's chief executive, said. "The year was also marked by a high frequency of natural catastrophe claims and the U.K.'s formal exit from the [European Union], driving further losses and uncertainty."
Lloyd's did not say which natural catastrophes had the biggest impact on the market. According to figures published separately by Munich Re in January, global insured losses from natural catastrophes last year were $82 billion, largely the result of a "hyperactive" hurricane season in North America.
Lloyd's said on Wednesday that reinsurance arrangements shaved £2.6 billion from the total cost of claims resulting from the COVID-19 crisis, bringing the cost for primary insurers in the market to £3.4 billion.
The claims pushed the market's combined ratio — a measure of underwriting success — from 102.1% in 2019 to 110.3% last year. A combined ratio of under 100% indicates an underwriting profit, while a figure above 100% indicates a loss.
Lloyd's said it would have reported a profit of £800 million and an improvement in its combined ratio to 97% if the pandemic had not occurred.
Neal said the market's prospect for the coming years looked promising, as it was fueled by "positive rate momentum."
The insurance sector in Britain is entering a "hard market," a cyclical trend in which demand for cover outstrips supply and prices increase across the board. The Financial Conduct Authority has noted the trend and warned insurers in 2020 to carefully explain to customers why the cost of their insurance is increasing.
Lloyd's said Wednesday that premium prices increased 10.8% last year and added that the trend was continuing in the first quarter of 2021.
--Editing by Ed Harris.
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