Lloyd's Estimates
Its Katrina Costs
At $2.55 Billion

Lloyd's of London estimated that claims related to Hurricane Katrina and the devastation of New Orleans could cost it a net $2.55 billion (€2.08 billion), its second-biggest loss ever, reinforcing expectations that insurers world-wide will push prices up next year to recover some of their huge losses.

Lloyd's estimate of its losses makes Katrina the second-most-expensive single disaster ever in nominal terms for the Lloyd's insurance market, whose members paid out about $3.5 billion for the World Trade Center terrorist attacks in New York in 2001. It also tops all other insurance groups' estimates of their individual exposure to Katrina claims so far. Lloyd's functions as a marketplace for syndicates that underwrite insurance policies.

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Lloyd's warned that conclusive data on how much the insurance market would have to pay out on Katrina wouldn't be available for some time. But it said in a statement yesterday that, based on current information, it didn't believe the disaster would push out of business any of the 62 syndicates that operate through Lloyd's. It also said it didn't believe any Lloyd's syndicates would make a material claim on Lloyd's £1.1 billion (€1.6 billion) bailout fund for its members, known as the Central Fund.

Katrina could cost the global insurance industry up to $60 billion, according to some industry estimates. Large European insurers often find themselves on the line for hefty chunks of insurance claims incurred by distant hurricanes such as Katrina, because they provide reinsurance cover to the direct insurers who sell home, automobile, industrial or life policies in the disaster zones.

The estimated $2.55 billion that Lloyd's syndicates could end up paying is split evenly between claims by individual policy holders who bought coverage directly on the Lloyd's market and claims from U.S. insurance companies that reinsured their risks through Lloyd's, spokesman Nick Gammage said. Lloyd's also sells reinsurance coverage to the reinsurance groups themselves, giving it three potential levels of exposure. Mr. Gammage said a detailed breakdown of Lloyd's exposure wasn't yet available.

Other European reinsurers, notably Swiss Reinsurance Co. of Zurich and Munich Re AG of Munich, have also said in recent days that they could face hefty bills for Katrina-related damage. Swiss Re has estimated its maximum loss could be $1.2 billion, and Munich Re, which initially estimated its losses at about $500 million, has said it could raise its estimate as further information comes in.

A number of Bermuda-based reinsurance groups, which are smaller than the large European companies but tend to be more focused on natural-catastrophe insurance, are also likely to face big losses.

Insurance brokers say the size of the reinsurers' exposure means it is almost inevitable that reinsurers will try to claw back losses by raising the prices they charge the direct insurers. "In the light of these numbers, there'll be upward pressure on prices in many areas, especially property catastrophe coverage, energy and large [industrial] risks," said Geoffrey Bromley, chairman of reinsurance brokerage firm Guy Carpenter & Co.'s non-U.S. activities.

Write to Charles Fleming at charles.fleming@wsj.com

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