Risk is poorly understood and must be a priority for business leaders after the most devastating economic losses on record, Lloyd’s CEO Richard Ward has warned.

In his 2011 review, he says industry must “get to grips” with risk management despite a recent Lloyd’s survey suggesting business leaders feel they are “over-prepared” for natural catastrophes.

Only a quarter of economic losses from hurricanes in the US, floods in Australia and Thailand, and earthquakes in Japan and New Zealand were recovered through insurance.

“There still appears to be a head in the sand approach to natural catastrophes,” Mr Ward said. “Business leaders’ surprisingly sanguine attitude towards these risks could cost their business dear.

“Businesses need to wake up to the fact that what happens in Japan doesn’t stay in Japan. Virtually every business larger than a corner shop relies on global supply chains.”

Despite lodging a £697 million ($860 million) pre-tax loss in the first half of last year – a £1.325 billion ($1.63 billion) turnaround from the previous year – Mr Ward says market losses were “small” considering 2011 was the second-highest claims year in history.

Premium capacity is also expected to rise by around £400 million ($590.7 million) this year.

Lloyd’s Chairman John Nelson says economic conditions will remain “difficult” this year, meaning the insurance cycle will take longer to turn.

“Underwriting discipline remains a central challenge for 2012,” he said.

He says pushing into the fast-growing economies of Singapore, China and Brazil will drive future growth, but the relationship with emerging economies must be reciprocal.

“I believe that pulling business in from these countries is as important as pushing Lloyd’s out to them,” he said.