LLOYD’S of London is preparing for the fall-out from Hurricane Charley, which ripped across Florida at the weekend causing damage estimated at between $5 billion (£2.7 billion) and $11 billion.

The financial toll, a large proportion of which is underwritten in London, threatens the fragile recovery of the Lloyd’s insurance market.

Lloyd’s made a record profit of £1.9 billion last year, helped by sharply lower catastrophe losses. Net catastrophe losses at Lloyd’s were a mere £142 million last year, compared with yearly figures of £600 million or more in the 1990s. Catastrophe losses at Lloyd’s spiked in 2001 on the back of the September 11 terrorist attacks, when the year’s losses hit £2.6 billion.

Only last week AM Best, the ratings agency, said that the market was on course for further record profits — barring catastrophes in the second half of 2004. The damage wrought by Hurricane Charley does a lot to undermine that confidence.

Underwriters will today urgently begin assessing exposure to Hurricane Charley, which may be one of the three costliest hurricanes to strike the US.

Hurricane Andrew in 1992 inflicted insured losses of $21 billion, while Hurricane Hugo in 1989 left insurers with a bill for $6 billion.

Lloyd’s said last night that it was too early to assess its exposure to Hurricane Charley with accuracy. Insured losses, however, are likely to be shared between insurers in the US, Bermuda and London.

The threat of a major US claim recalls events of a decade ago when Lloyd’s was brought to the brink of ruin by a succession of disasters. The Piper Alpha oil rig explosion in the North Sea in 1988 was followed in 1989 by Hurricane Hugo and the Exxon Valdez tanker spill in Alaska.

Hurricane Andrew in 1992 added to a mix that included the failure of the Gooda Walker syndicate and an eruption of asbestos-related claims. Losses at Lloyd’s totalled £8 billion between 1988 and 1992. The market survived only by pooling subsequent asbestos claims into a new reinsurance body, Equitas. This was intended to draw a line under potentially ruinous claims dating back decades.

The losses had a devastating effect on the private investors, or names, who had traditionally underwritten capacity at Lloyd’s. Many were made bankrupt. Lloyd’s is now dominated by corporate backers who may be better able to cope with the losses. Corporate capital now makes up 88 per cent of the Lloyd’s market’s capacity.

Lloyd’s has consistently given warnings about the growing financial threat posed by severe weather. In a speech in New York last year, Lord Levene of Portsoken, the Lloyd’s chairman, said that the coastal areas of the US had seen their populations grow by more than 30 per cent in the past 30 years. Some 68 million Americans are now living in locations vulnerable to hurricanes.In America, insurance losses from natural diasters have increased 15-fold since the 1960s.

Lord Levene told his audience: “Since 1990 insurers have paid out $700 million a month for natural disasters. Hurricane Hugo was the most costly natural insured catastrophe in US history. Should it hit Miami today, just 20 miles away, the estimated cost could exceed $50 billion.”

More than 60,000 people were killed by natural and man-made catastrophes last year, according to analysis by Swiss Re, the reinsurance group. More than two thirds were victims of earthquakes. Overall economic losses from catastrophes last year amounted to $70 billion. Property insurers had to contend with losses of some $18.5 billion.

Snowstorms across the US in April last year and tornadoes in the Mid West in May cost insurers $3.2 billion and $1.6 billion respectively.

The US accounts for more than a third of Lloyd’s business.