James Moore: An odd problem for Lloyd's: too much cash undeterred by a run of disasters

Outlook: Lloyd's of London was once the City's problem child. It's now the class prefect. That was driven home by yesterday's results: the insurance market posted its best half-yearly profits for five years.

So why was no one celebrating? Does working in that strange inside-out building on Lime Street that Lloyd's calls home inevitably lead to depression in its executives? Is all that bad history weighing them down?

Hardly. Lloyd's had a brutal time of it in 2011, a year in which the world was rocked by a succession of catastrophes. Notwithstanding the recent bad weather and the fact that we're now smack in the Atlantic hurricane season, there's been a merciful absence of real horrors in the first part of this year.

Lloyd's has been lucky. What worries its executives is that the industry still faces a structural problem. There is still too much capital chasing too little insurance business, which is depressing premiums to such an extent that, in some classes of business, insurers are almost guaranteed to lose money if they decide to play.

A couple of years ago Richard Ward, the chief executive of Lloyd's, was asked what scale of disaster it would take to chase off the billions of excess cash slopping around. He reckoned several really nasty catastrophes, leading to insured losses of between $50bn and $80bn. Last year's industrywide losses were $105bn – the second worst on record for the industry and the worst year on record for Lloyd's. And yet the excess capital is still there.

The trouble is, even though the returns from investing in insurance aren't great, they're still better than the alternatives. If you can make a small profit on the premiums you take in, and a bit more from investing them, then insurance is a better bet than most of the alternatives. Even if that small profit is getting squeezed.

There are things which can be done to ameliorate the situation. In Australia, New Zealand and Japan last year there was a $330bn (£204bn) gap between the total cost of the various catastrophes that hit and what insurers actually paid out. In the US the gap was just $6bn, although there were fewer misfortunes. It would appear from this that a lot of people are under-insured Down Under. Lloyd's wants to change this.

But that will take hard work, money and time to yield results. For now, Lloyd's is relying on the global economy improving and other investments becoming more attractive to improve its situation. Just like everyone else, including those bad kids at the back of the class: the banks.

Santander's not that bad, but it's also not that good

Taking of banks, it looks like Santander's off to the sales again. This time it's the Mexican business that's on the block with about a quarter up for sale to outside investors.

Spain's biggest bank is a long way from being a caja, one of country's network of horribly indebted savings banks that are frightening the life out of politicians, regulators and, especially, investors.

But a bit of extra capital certainly wouldn't go amiss and Santander has pulled off the trick of offloading a minority stake in one of its overseas businesses before.

Which raises the question: what about Santander UK? Wasn't it supposed to have been trading on the London Stock Exchange by now?

The trouble is, Ana Botin, who runs the show, thinks it can deliver a return on equity of around 15 per cent. That might be just a tad ambitious. But then again, despite all the political rhetoric, the UK banking market is becoming progressively less competitive. Less competition means more profits and a return on equity that starts to look rather respectable.

Trouble is, the market doesn't believe the hype. Banks in the UK, at best, trade at about 0.7 times their net asset value. And while Santander UK doesn't have some of the really nasty legacy issues that plague some of its competitors it is some way from being the best.

Just look at the complaints numbers. Effective and well-run banks shouldn't inspire that level of annoyance from their customers.

If Santander wants to sell part of its UK business it will have to offload it at a chunky discount to what it is theoretically worth, let alone what Ms Botin and her colleagues think it is worth. And with $4bn from Mexico to fatten its balance sheet Santander simply isn't that desperate. Yet.

As mine protests spread, so will the solution

It's not just platinum miners that are revolting (if you're a mining executive). Now gold's getting tarnished by industrial unrest too. The fires lit by the platinum miners at Marikana are spreading, and AngloGold is the latest to feel their heat.

The political backdrop against which this is playing is toxic. Miners on the ground feel betrayed by union leaders. They look at those leaders, their politicians, and at their bosses and they perceive a cosy triumvirate that is getting fat off their labour.

Miners might well be in a fortunate position compared with their countrymen who are forced to hang around on the street corners of Johannesburg in the hope that someone will stop by with an offer of work. But with food prices steadily rising again and several hungry mouths to feed many of them are feeling the pinch.

The solution for AngloGold's parent, Anglo American, is simple. It should follow Lonmin's example at Marikana and pay up before a bad situation deteriorates.

Sure there'll be some bitching in the City. But is a lot easier for a multi-millionaire executive to deal with bitching from analysts than it is for a miner to placate a hungry family whose spending power is getting eaten away by inflation in global food prices.