Lloyd’s profits jump to £2.3bn on better investment and small price rise

Lloyd’s saw its pre-tax profit jump to £2.3bn in the first half of 2019 from £0.6bn during the same period last year, on the back of better investment figures and a small rise in premium prices. But the market recorded an underwriting loss with only two business lines in profit. Announcing its results, Lloyd’s said there remains more work ahead to bolster underwriting results, cut costs and improve its attritional loss ratio. Despite better performance in the first half of this year, Lloyd’s’ combined ratio deteriorated to 98.8% from 95.5% a year earlier. Lloyd’s recorded an underwriting loss of £86m in H1 compared to a profit of £308m in the first half of last year. Only two of eight business lines – property (£82m) and energy (£83m) – delivered an underwriting profit in the first half of this year. Casualty delivered the biggest underwriting loss at £105m, followed by marine on £99m. Gross written premiums (GWP), meanwhile, were up a touch to £19.7bn from £19.3bn in H1 2018. However, when foreign exchange rates, business from new syndicates and risk adjusted rate on renewal are factored in, Lloyd’s saw a 6.5% underlying decrease in GWP. This was primarily caused by syndicates exiting or re-underwriting underperforming classes of business, partly in response to the market’s previously announced plan to tackle poor results. “In several major lines of business, and most significantly in marine business, premium volumes have contracted as syndicates seek to remediate performance within their portfolios. However, there has also been some isolated growth, typically in specialised lines and most significantly cyber, which continues to see more buyers come to the market,” Lloyd’s said. The market benefitted from improved pricing across the first half, with the aggregate risk-adjusted rate on renewal business up 3.9.%. “While market conditions generally remain at historically competitive levels, price increases have been witnessed across all major lines, most notably in property and aviation,” said Lloyd’s. But the market’s better performance was mainly due to investment income of £2.3bn in H1, up from £0.2bn in the same period of 2018. Lloyd’s said it benefited from unrealised gains due to reducing US and UK bond yields, as well as robust returns from equities in the first six months. The Lloyd’s market has also seen an improvement in its attritional loss ratio for the current accident year, which it said reflects strengthened underwriting discipline. But it added there is more work to be done. “While efforts to address performance continue across the market, the impetus to improve underwriting results must prevail. Specifically, the high operating costs and attritional loss levels remain particular concerns,” said Lloyd’s. Lloyd’s’ operating expense ratio fell 1.2% in the first half to 38.1% as it sought to cut costs. Lower administrative expenses contributed a 1.5% reduction, but there was a small increase of 0.3% in the acquisition cost ratio from changes to Lloyd’s’ mix of business. Lloyd’s’ net resources are up to £32.4bn from £28.2bn at the end of last year. Its central solvency ratio now stands at 266%, from 249% at the end of 2018. John Neal, Lloyd’s CEO, said it is encouraging that the market is showing increased discipline in 2019 through a reduction in gross written premiums and an improvement in the attritional loss ratio for the current underwriting year. “However, we recognise the importance of continued focus on performance management to maintain this momentum throughout the rest of 2019 and beyond,” he added. Mr Neal said that at the same time as ensuring Lloyd’s can deliver sustainable, profitable growth, it needs to make some “brave choices on how to meet the expectations of our customers and all our stakeholders in the future”. He believes the Future at Lloyd’s strategy will ensure the marketplace is ready for these challenges and opportunities ahead. The strategy’s first blueprint will be published on 30 September. Mr Neal also said Lloyd’s will be announcing the results of its market-wide culture survey and action plan to tackle cultural problems on 24 September at the Dive In Festival. This follows press reports of unacceptable behaviour around the market. Lloyd’s has also named David Sansom as chief risk offer (CRO) following an interim stint in the role since October 2018. It was announced that Annette Andrews, chief people officer, will leave Lloyd’s at the end of this year.

Lloyd’s profits jump to £2.3bn on better investment and small price rise

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