Lloyd’s back in the black as focus on profit bears fruit

Lloyd’s has returned a profit of £600m for the first half of this year, after the market’s results were hammered by the spate of disasters in 2017 that led to a yearly underwriting loss of €3.9bn and combined ratio of 114%. The poor 2017 result led to a serious review of the Lloyd’s market, which is forcing many managing agents to cut back on loss-making lines and demonstrate they have solid plans to return to profit after years of fierce competition and soft markets. CEO Inga Beale announced her decision to step down in June and John Neal, former CEO of QBE, will replace her sooner than expected. Ms Beale is accompanied out of the door by a number of other leading market executives, such as CFO John Parry and chief commercial officer Vincent Vandendael. Mr Neal and Lloyd’s chairman Bruce Carnegie Brown will be pleased to see that the market has managed to deliver a far more respectable combined ratio of 95.5% for the first half of this year. The market also managed to report a modest increase in gross written premiums to £19.3bn, compared with £18.9bn for the first half of last year. Lloyd’s said this was driven by improvements in pricing and growth in some profitable lines. The underwriting result was up to £500m from £400m during the same period last year. “This partly reflects Lloyd’s’ ongoing work that commenced in 2017 to review the worst-performing portfolios, and the subsequent action by the market to reduce loss-making lines,” said the market. Policyholders at Lloyd’s will be pleased to hear that Lloyd’s’ capital position is at its strongest ever, with net resources totalling £29bn against £28bn as of June 2017. Lloyd’s’ credit ratings were recently reaffirmed at A (excellent) by AM Best, A+ (strong) by Standard & Poor’s and AA- (very strong) by Fitch. Ms Beale, said: “These results and return to profit demonstrate the strength of the Lloyd’s market following one of the costliest years for natural catastrophes in the past decade. Whilst these results are welcome, Lloyd’s continues to concentrate on improving the Lloyd’s market’s long-term performance by acting to address underperforming areas of the market. “The corporation also remains focused on making the Lloyd’s platform more competitive. Alongside the success of the mandate for the placement of electronic risks, we have recently launched the Lloyd’s Lab, our new innovation accelerator, which will help Lloyd’s use technology to better serve our customers around the world. We have also worked tirelessly to secure the Lloyd’s market’s access to the EU27 and our Lloyd’s Brussels subsidiary will start writing business in the European Economic Area from 1 January 2019,” she added. While Lloyd’s is traditionally underweight in Europe compared with North America, there is still some £3bn of premium at risk because of Brexit. About £500m of this is provided by European coverholders and some £500m provided by UK coverholders that write EU risks. This will mainly be SME-type business and still leaves a decent slug of some £2bn annual premium that comes to the Lloyd’s market on an open market basis, presumably from middle market and larger European corporate policyholders. To help protect this business and reassure policyholders that their cover will be solid and claims paid post-Brexit, Lloyd’s decided to carry out a Part VII transfer of contracts to the Brussels operation. This week, Lloyd’s published underwriting documents for its new European insurer ahead of Brexit. The policy documents, drafted between the Lloyd’s Market Association wordings unit and Lloyd’s’ Brexit and regulatory affairs teams, pave the way for Lloyd’s Brussels to begin writing non-life and facultative reinsurance risks in the European Economic Area. Following Mr Vandendael’s decision to leave Lloyd’s, however, the market does need to hire someone to lead the new EU operation and help protect its position in the European Economic Area.

Lloyd’s back in the black as focus on profit bears fruit

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