Lloyd’s reported 2016 pretax profit of £2.1 billion pounds ($2.6 billion). That’s level with 2015, despite a worsening of the market’s combined ratio at 97.9 percent, compared with 90.0 percent in 2015.

Return on capital was 8.1 percent in 2016 compared with 9.1 percent the previous year, while gross written premiums increased to £29.9 billion ($36.4 billion) from £26.7 billion ($32.5 billion) in 2015.

As a result of the ongoing soft market, competition from alternative capital and higher natural catastrophe claims, underwriting profit for the year took a hit, decreasing to £500 million ($608.7 million) from £2 billion ($2.4 billion) in 2015.

Hurricane Matthew and the Fort McMurray wildfires in Canada helped raise 2016 claims to £2.1 billion ($2.6 billion) from £700 million ($852.2 million) in 2015. The claims figure for 2016 marked Lloyd’s fifth highest claims level since the turn of the century and above the long-term average.

“Conditions over the course of the year were extremely challenging with continued downwards pressure on pricing while traditional and alternative capital remained attracted to the insurance industry,” Lloyd’s said in a statement.

Syndicates writing motor reinsurance and direct motor and UK liability business have been affected by the recent announcement to change the discount rate to negative 0.75 percent (the Ogden tables), which is used to calculate lump-sum personal liability claims, Lloyd’s said in a statement.

Following the United Kingdom’s decision to leave the European Union, Lloyd’s confirmed a subsidiary office will be opened in Brussels with the intention that it will be operational for the Jan. 1 renewal season in 2019.

“This has been a year of challenge for the insurance sector with premiums once more under continued downward pressure,” said Chief Executive Inga Beale.

“Our collective focus must be on providing customers with the products they want, embracing innovation and modernization,” she added. “The market has shown how well it reacts to the demands of its customers in a rapidly changing risk environment with the considerable increase in cyber coverage throughout 2016 – a perfect case in point.”

“The results confirm that we must have an unrelenting focus on underwriting discipline through 2017,” said Lloyd’s Chairman John Nelson. “The challenge for all of us is to reduce the cost of conducting business because within the market this is [affecting] already thin underwriting margins.”

Nelson is retiring and will be succeeded in June by Bruce Carnegie-Brown, the former chief executive for Marsh Europe and non-executive chairman of Aon UK Ltd.

Source: Lloyd’s

*This story appeared previously in our sister publication Insurance Journal.