Lloyd’s profit falls alongside premium growth and improved underwriting result for first half

Lloyd’s has reported a 16% fall in profit to £1.22bn for the first half of 2017. However, Lloyd’s also reported a 16% increase in gross written premiums, an improved combined ratio, and a 78% improvement in the underwriting result, up from £206m last year to £366m for the first half of 2017. Lloyd’s chief executive, Inga Beale, said that in conditions where there remains severe pressure on pricing across all lines of business, it was a “solid result”. Gross written premiums increased by 16% to £18.9bn, while the combined ratio improved to 96.9% from 98.0% for the first half of 2016. Investment return was 1.5% compared to 1.8%. The improvement in the underwriting result was driven by the low incidents of major losses, action taken to address underperforming lines of business, along with price and trading competition across other lines of businesses, said Lloyd’s. It stressed that the figures do not take into account the recent storms faced by the Caribbean and the US, and instead reflect what had been, until recently, a relatively benign loss period. It added that, despite continuing pressure on pricing from excess capital and low interest rates, the development of new products has seen an increase in volumes. “These results highlight the continued strength of the Lloyd’s market, but they do reflect the challenging conditions that have shaped the sector over recent years. Our focus on maintaining a strong underwriting discipline and concentrating on profitable lines of business is showing signs of success, but we cannot allow that focus to waver if we are to continue to ensure the Lloyd’s platform is the most attractive option for customers,” said Ms Beale. She added: “Whilst these results do not cover the current hurricane season in the Caribbean and United States, the market is assessing claims and starting to make payments that will help local communities and businesses get back on their feet as quickly as possible. It is our ability to respond quickly and effectively in times like these that differentiates the Lloyd’s market and is ultimately what we are here to do.” Lloyd’s said it is expecting net losses of $4.5bn (£3.4bn) related to losses in the Caribbean and Florida as a result of hurricanes Harvey and Irma. Ms Beale said that while the improvement in the underwriting result is encouraging, the make-up of the results is dominated by investment income, which continues to buoy the proﬁt of the market. Investment return marginally declined to 1.5% compared with 2016 (June 2016: 1.8%), but remained solid in most asset classes, thanks to more stable ﬁnancial markets in the ﬁrst six months of 2017, she said. Capital and reserves totalled £27.98bn, a small decrease on the year-end figure of £28.60bn, but Lloyd’s stressed that the capital base “remains in a strong position to meet challenges in the second half of the year”. Pricing levels have continued to decline, said Lloyd’s, as market conditions remain intensely competitive across all major lines, with the aggregate risk-adjusted rate on renewal business reducing 2.3% at the half-year stage. However, Lloyd’s noted that this has been offset by continued increases in volume, particularly in property insurance (US binding authorities), proportional treaty reinsurance lines, casualty, particularly US professional lines and cyber, and specialty, notably political risks. In other major lines of business such as marine, aviation, energy and property catastrophe, premium has been more stable or contracting. In terms of lines of business, the largest, reinsurance, saw gross written premiums of £7.01bn and an underwriting profit of £258m, for the first half of 2017. Property reported gross written premiums of £4.60bn and an underwriting loss of £50m, while gross written premiums for casualty business totalled £4.13bn with an underwriting loss of £65m. Marine and motor both reported underwriting losses, while energy (£80m) and aviation (£2m) both saw an underwriting profit. “While the first six months have benefited from the low incidence of large and catastrophe losses, price and trading competition in nearly all lines of business and in most markets continues to fuel pressure in attritional loss ratios,” said Lloyd’s. “There remains considerable economic as well as political uncertainty at a global level, which will continue to influence risk management and risk protection behaviour.”

Lloyd’s profit falls alongside premium growth and improved underwriting result for first half

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