Chief Executive statement
The challenging market conditions that have shaped the insurance sector over recent years showed no sign of abating in the first six months of 2017. The pressure of low interest rates and incoming capital may be something we are all too familiar with, but it has not lessened their impact on the specialist insurance and reinsurance sector.
In these conditions, where there remains severe pressure on pricing across all lines of business, the Lloyd’s market profit of £1.22bn (June 2016: £1.46bn), bolstered by a reduced combined ratio of 96.9% (June 2016: 98.0%), for the first six months of 2017 is a solid result.
We have continued to operate in an exceptionally benign loss period through the first half of the year, although this has been oﬀset by a reduction in prior year reserve releases, totalling £0.19bn for the period (June 2016: £0.60bn).
While pricing remains under pressure, volumes have seen continued growth, driven in part by the development of new products in critical areas such as cyber. Gross written premiums increased by 16% to £18.9bn (June 2016: £16.3bn), including the eﬀect of foreign exchange movements. After adjusting for the impact of foreign exchange movements the underlying increase in gross written premiums was 4.7%.
Lloyd’s has continued its relentless focus on maintaining strong underwriting discipline and profitable lines of business, whilst addressing underperforming lines of business.
This approach has shown some early signs of success with a 78% improvement in the underwriting result for the first six months of 2017, compared with the same period last year. While this 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.
Lloyd’s capital position remains strong, with net resources totalling £28bn and an annualised return on capital of 8.9%. We issued a Tier 2 subordinated bond in January 2017, which enabled Lloyd’s to refinance its debt thereby maintaining stable coverage of solvency capital requirements. Our excellent ratings remain in place, demonstrating Lloyd’s strong financial position. Fitch recently reaffirmed our rating of AA- (very strong), as did Standard & Poor’s at A+ (strong) and A.M. Best at A (excellent).
There remains considerable global economic and political uncertainty, which will continue to influence risk management and risk protection behaviour. As the UK Government continues its negotiations to exit the European Union, Lloyd’s has been committed to providing certainty to market participants and our customers based within the EU27.
We announced in March we would formally apply to open a subsidiary company in Brussels. For the first time, Lloyd’s will have a physical, capitalised presence in mainland Europe. This will present us with new opportunities to grow our EU business over the coming years. It will be a fully operational, capitalised insurance company and Solvency II compliant. It will be regulated by and report directly to the Belgian regulator.
Lloyd’s continues to grow in our other established markets, driven by coverholder and specialty insurance growth. The pace of Excess and Surplus lines growth in the United States in the first half remained strong, maintaining Lloyd’s leading position in the sector. We were also delighted to formally open the Lloyd’s India branch after many years of hard work.
Internally a key focus has been to ensure that we are working as eﬀectively and efficiently as possible for the market, delivering real value for money. The Corporation Operating Model (COM) programme currently being rolled out will ensure that we are fit-for-purpose, with cost-efficient, streamlined services. This new operating model enables us to focus on the role market participants expect from us; to protect, promote and provide the services they need.
Modernisation eﬀorts across the market continue to gain momentum. With a number of solutions now rolled out, a concerted eﬀort across the market towards adoption will be critical to the London Market Target Operating Model programme’s success. For London to maintain its position as the global leader in specialist insurance and reinsurance, modernisation will remain front and centre for Lloyd’s as we continue to build on the successes so far.
Recent natural catastrophes around the world have underlined the importance of what we do as a sector and a market. These are the times when we must act with speed and urgency, to help people, businesses and communities get back on their feet as quickly as possible. We have been working hard on responding to claims and, in the case of storms Harvey and Irma, have already paid out significant amounts in Texas and Florida. We continue to work closely with brokers, coverholders, and customers to make sure they are receiving the support and the service that the Lloyd’s reputation has been founded on.
Our strong capital credentials, described earlier, demonstrate that Lloyd’s is in robust financial shape, ensuring that we are more than ready to bear the financial impact of these events.
I would like to welcome our new Chairman Bruce Carnegie-Brown, now three months into the job. Although we undoubtedly face another tough six months exacerbated by recent catastrophic loss events, I am confident that we have in place a highly experienced leadership team who are taking action to address the challenges going into the second half of 2017, and into the future.
Chief Executive Officer