Lloyd’s ‘comfortable’ with targets despite $2.3bn wildfire losses

Lloyd’s is maintaining its 2025 growth and profitability targets despite market softening and large losses in Q1 from the California wildfires. Lloyd’s expects losses from the California wildfires in January to total around $2.3bn, representing almost half of its annual catastrophe loss budget, or five percentage points of its combined ratio. Despite the unusually large losses at the start of the year, Lloyd’s is sticking to its guidance of $60bn in premium and combined ratio of 90-95% for 2025, according to its deputy chief financial officer Alexandra Cliff. “We expect the net loss to be around $2.3bn. We remain very comfortable in the outlook we have given,” said Cliff, speaking at Lloyd’s results media presentation. Lloyd’s is targeting gross written premium of $60bn in 2025, up from its 2024 target of $57bn, plus or minus 5%. Lloyd’s actually posted $55.5bn of gross written premiums last year. This was at the lower end of its forecast due to “sensible discipline in lines of business that see rate adequacy challenges”, explained Patrick Tiernan, Lloyd’s chief of markets. Lloyd’s expects much of its 2025 premium growth to come from its largest market in the US but also from Europe, according to Lloyd’s chief executive officer John Neal. “The simple reality is that the penetration of the purchase of insurance is twice what it is in the US as it is everywhere else in the world. We are seeing a lot more go into the surplus market than ever before, and therefore we would expect growth pointedly to come from the US. We are very encouraged by what we are seeing coming out of Europe with our subsidiary there, and the significant double-digit growth we are seeing year on year. So I would say US first, Europe second, emerging markets third,” Neal said. Tiernan indicated that Lloyd’s also has room to underwrite more reinsurance. “We will entertain new business lines, new geographies where we have a right to win and a chance to operate at sufficient scale. Equally, we have room at a higher attachment point for more reinsurance in the portfolio, particularly if it is structured in such a way that it arrives at Lloyd’s with attractive terms,” said Tiernan. Lloyd’s continues to target premium growth in a market that is beginning to see reinsurance and insurance rates softening, particularly for property, cyber and directors and officers. Most of Lloyd’s premium growth in 2024 came from increased volume, especially in property insurance and reinsurance. Just 0.3 % of its 6.5% premium growth last year was attributed to price increases. However, Neal does not appear concerned about current pricing trends. “There are some areas where underwriters can afford to give some price, and there are many other areas where they need to take price. So the broad assumption is that there will be some pressure on price, but not a lot. We need to maintain our discipline because we need to maintain the level of result on an underlying basis,” said Neal. While keen to grow, Lloyd’s remains “laser” focused on underwriting profitability, according to Neal. “The market is focused on taking risk sensibly, not blindly,” he said. Rate adequacy by line of business will be among the dominant themes for 2025 and 2026, according to Tiernan. “This is a good market and we have good trading and strategic momentum. However, the rate of current market changes requires urgent and differentiated oversight action. Talk of inevitable cycle turns is in my view simplistic, misses class level dynamics and obfuscates the more interesting structural trends in the market today,” he said. Lloyd’s reported profit before tax of £9.6bn last year, down 10% on 2023. The result included $2.3bn in losses from US hurricanes and $400m from the Baltimore Bridge collapse in March 2024. Despite a strong result, Lloyd’s has yet to make up for past poor performance in the soft market, according to Burkhard Keese, Lloyd’s chief financial officer. “2024 was the second consecutive year of very high profitability. But do not get carried away. We have not earned our cost of capital over the last seven years. Meaning the high profits in 2023 and 2024 were not enough to offset results since 2018, and I believe this is very much true for the whole industry. This means we must maintain underwriting discipline,” he said. Lloyd’s achieved a return on capital of 21% in 2024. However, this brings the seven-year average return to 7.6%. Investors expect a return of between 10-15%, said Keese. Lloyd’s underwriting result dipped to £5.3bn in 2024 while the combined ratio deteriorated 2.9 percentage points to 86.9%. However, Lloyd’s underlying combined ratio, which strips out major losses, improved by 0.6 points to 79.1%. This was within Lloyd’s 80% target. At this level, Lloyd’s can absorb catastrophe losses of $8bn before reporting a negative underwriting result, according to Keese. Neal noted that Lloyd’s continues to attract new players, with Aviva and Fidelis joining the market in 2024, and Oak Re and Convex entering the market this year. Last year also saw the creation of Lloyd’s first captive syndicate. “Our focus on executing against strategy, alongside the market’s strong attention to disciplined underwriting, has driven Lloyd’s leading performance – importantly supported by a high-quality and resilient balance sheet. Those realities mean that Lloyd’s is in the strongest financial position in recent memory, with sustainable growth and record profits,” said Neal.

Lloyd’s ‘comfortable’ with targets despite $2.3bn wildfire losses

Further market discipline needed to make up for poor years, says CFO

Want to read this article?

Read Next

Retain focus on loss prevention and resilience despite softening conditions

Demand for D&O rapidly rising in India

Rates fall further in India, Middle East and Africa: Marsh

BI policies unlikely to respond as Spain and Portugal search for cause of mega blackout

Talanx says Q1 profit backs full-year forecast

Retain focus on loss prevention and resilience despite softening conditions

Demand for D&O rapidly rising in India

Rates fall further in India, Middle East and Africa: Marsh

BI policies unlikely to respond as Spain and Portugal search for cause of mega blackout

Talanx says Q1 profit backs full-year forecast

Keep yourself informed

Sign up for Commercial Risk’s newsletters

Want to read this article?

Read Next

Retain focus on loss prevention and resilience despite softening conditions

Demand for D&O rapidly rising in India

Rates fall further in India, Middle East and Africa: Marsh

BI policies unlikely to respond as Spain and Portugal search for cause of mega blackout

Talanx says Q1 profit backs full-year forecast

Related Articles

Keep yourself informed

Sign up for Commercial Risk’s newsletters