Jeremy Warner's Outlook: Things must be changing as worst hurricane season on record fails to damage Lloyd's

At first glance, it looks a familiar tale. Lloyd's of London, the 318-year-old insurance market, is back in loss again, a state of affairs which seems to occur with sickening regularity every four or five years as the insurance cycle turns from boom to bust.

But hold on a moment. Scratch the surface and this is not the road crash we have grown to expect from this most accident prone of markets. At "just" £103m, the loss is much smaller than in past cycles, a performance made all the more remarkable by the fact that three major hurricanes on America's eastern seaboard - Katrina, Rita and Wilma - made this the worst year ever for catastrophic insurance loss.

If Lloyd's lost only £103m in a year when catastrophe claims at $83bn shredded the record books, then the market must be doing something right. Four or five years ago, claims of this order of magnitude would have rendered Lloyd's insolvent. Members would have struggled to honour the claims, and many would have gone bust.

The fact that the market has survived such a tumultuous year relatively unscathed is testament to the progress in bringing in new measures to stop individual syndicates from taking on excessive levels of risk. The terrorist atrocities of September 11, costing the market roughly £2bn in claims, resulted in a total loss for Lloyd's that year of more than £3bn. Yet the much bigger losses caused by hurricane damage in 2005 have resulted in a net loss of only £103m this time around.

The central fund - the market's lender of last resort - actually went up in value. The solvency ratio also improved, quite an achievement in a year of record claims and a tribute to the reforms introduced under Lord Levene of Portsoken, the chairman. Lloyd's has simply got a whole lot better at managing risk, a development which in turn has been underpinned by the introduction of the Franchise Development team.

This caused a stink among syndicates when it was introduced in the aftermath of the attacks on the World Trade Centre. The idea of their underwriting decisions being second guessed by officials was objectionable, and they feared that it would make their business plans public knowledge. In fact, Franchise Development has worked just as proposed in helping promote more rigorous standards of risk control.

Still, the market cannot afford to rest on its laurels if it wants to remain around for the next 318 years. Many of its customs and practices still seem to belong more to the 17th century than our own. Remarkably, huge tracts of the market's business are still conducted unnecessarily on paper and through face-to-face contact. At a time of rising competition from the reinsurers of Bermuda and elsewhere, Lloyd's is left trailing in many of its business processes.

What's more, insurers may have to reconcile themselves to the idea that 2005 was not the freak year for claims it seemed. Global warming may already be bringing about profound changes in weather patterns, turning on their heads traditional models of risk assessment. If Richard Ward, the former International Petroleum Exchange head who joins as chief executive later this month, imagined that all the heavy lifting work had already been done, he's got another think coming.

Watch out, the gold bugs are back

Gold is back above $600 an ounce - its highest level in 25 years - and few expect it to stop there. Limited supply in combination with booming demand from the developing economies of Asia seem to underpin the price at this level for years into the future.

The only thing that might obviously damage it is an economic setback in the developing world, yet even this might paradoxically help the yellow metal. In many regions of the world, gold is reasonably seen as a much better store of value when the going gets tough than bank deposits or almost anything else.

In any case, the fundamentals look compelling. As previously impoverished populations grow richer, they begin to seek the luxuries of life in ever-increasing numbers. In India, the phenomenon finds its expression in spiralling prices for local art and coastal properties. Demand for gold jewellery too is rising exponentially. Liberalisation of the Chinese market, allowing citizens to trade and own gold, provides a further boost to demand.

At the same time, supply remains extremely limited. Low gold prices through much of the 1990s means that few new sources of production have been developed. The other big source of supply, central banks, has been capped by international agreement at 500 million tonnes a year. And while the central banks of the developed world continue to be sellers, China's central bank, with very low gold reserves relative to its holding of foreign currencies, has indicated it might be a buyer.

The mystique of gold as a rare and ancient commodity - the world's oldest currency - is part of its attraction as an investment. There are few industrial uses for the metal any longer, and outside jewellery, no obvious other use for it either. It carries no rate of interest and is costly both to store and because of the insurance to keep. Yet everyone seems to want it, and despite volatility in the price, the metal has always had a committed following of enthusiasts who believe it will eventually vindicate itself as investment as well.

As the world grows richer, everything scarce seems to take on a heightened value. And whatever the long-term prognosis, the present imbalance between supply and demand looks set to continue for a good few more years yet.

j.warner@independent.co.uk