Lloyd’s reported a return to profits during the first half, in a welcome recovery after its big losses of 2017.
Pre-tax profits during the half were £600 million ($793.1 million), compared to £1.2 billion ($1.6 billion) in the first six months of 2017.
Lloyd’s blamed the drop in profit from last year’s first half on a low investment return of £200 million ($264.4 million), compared with £1.0 billion ($1.3 billion) in H1 2017. The drop in investment income “is consistent with the low returns seen across most asset classes over the period,” said Inga Beale, Lloyd’s outgoing chief executive officer. (John Neal, the former CEO of QBE Insurance, will be replacing Beale on Oct. 15).
The market’s pre-tax loss of £2 billion (US$2.6 billion) during full-year 2017 was attributed to major claims from Hurricanes Harvey, Irma and Maria and wildfires in the third and fourth quarters as well as a deterioration in non-catastrophe losses, brought about primarily by price deterioration in a competitive marketplace.
In response, Lloyd’s took action last year to review the worst performing portfolios and pull out of loss-making lines — in a business review that has continued this year.
“At the moment…we don’t know how much Florence is going to cost us – it’s too early to tell – but we always build in a certain element for catastrophe losses,” said Lloyd’s CEO Inga Beale.
Indeed, the first half showed an improved underwriting result of £500 million ($660.9 million), compared to £400 million ($528.7 million) during the first half of 2017.
Lloyd’s reported an H1 2018 combined ratio of 95.5 percent, compared to 96.9 percent reported in June 2017. (A combined ratio below 100 percent indicates an underwriting profit.)
The market had a modest increase in H1 gross written premiums to £19.3 billion ($25.5 billion), compared with £18.9 billion ($25 billion) for the same period last year, which Lloyd’s attributed to improvements in pricing and growth in some profitable lines.
“We continue to focus on improving the Lloyd’s market’s long-term performance by taking positive action to address areas of the market that are underperforming,” said Beale in a statement accompanying the results.
“While much of the Lloyd’s market is profitable, some syndicates and certain lines of business have a disproportionate negative impact on the market’s profitability,” she added. “Syndicates are being asked to conduct in-depth reviews of the worst performing 10 percent of their portfolios, along with all loss-making lines, and submit their relevant remediation plans for approval as part of the 2019 business planning process.”
Although the recent large catastrophes – such as Hurricane Florence – are not included in these results, “we always allow for a certain number of [catastrophes] a year,” said Beale during an interview with BBC Radio 4 ‘s “Today Programme. “At the moment…we don’t know how much Florence is going to cost us – it’s too early to tell – but we always build in a certain element for catastrophe losses.”
“That’s the business we’re in. We’re in the business of taking risk away from businesses and individuals – taking it on to our balance sheet, which is stronger than it’s ever been. That’s exactly what the Lloyd’s market does.” (In its H1 results, Lloyd’s noted its capital position is its strongest ever with net resources totaling £29.0 billion, compared with £28.0 billion in 2017).
Commenting on the Marsh acquisition of Jardine Lloyd’s Thompson, which was announced this week, Beale said such broker consolidation has always been happening. “Whenever there’s a competitive environment, and perhaps difficult to grow organically, we see M&A activity…,” she said during the radio interview.
Lloyd’s is very fortunate because about 250 different brokers bring business into the market, “so we’ve got a really well diversified distribution channel,” she added. “We’ve also got delegated authority, which means we give authority to businesses all around the world. We have 4000 of those partners all around the world who bring business to Lloyd’s.”
As a result, she said, Lloyd’s doesn’t see broker consolidation as a big threat.
In her results commentary, Beale said the market’s key priorities for 2018 “are improving underwriting performance, reducing expenses, and enhancing access to Lloyd’s through technology – supporting our digital evolution.”
These digital projects include:
- The Lloyd’s Bridge pilot, which was launched in July, is an online portal that aims to quickly and easily match new binder or coverholder business in both established and high growth markets with Lloyd’s underwriters and brokers.
- The Lloyd’s Workbench pilot, which will be launched later this year, is an underwriting system where coverholders and syndicates can more efficiently manage risk transfer under a binder.
- The Lloyd’s Lab, a new innovation accelerator launched in September, aims to build a more sustainable and competitive insurance market by providing an environment where entrepreneurs can come in with fresh ideas to help Lloyd’s redefine how we use technology to better serve our customers around the world.
- Lloyd’s announced a mandate in March for electronic placement of risks to accelerate the market’s transformation from paper to digital and ensure the market realizes the benefits of electronic placement. In Q2 Lloyd’s exceeded its target of 10 percent, with syndicates accepting 16.3 percent of in-scope risks electronically.
*This story ran previously in our sister publication Insurance Journal.