Chief Executive statement

Lloyd’s has been working hard to ensure the market improves its underwriting performance by remediating the worst performing sectors in the marketplace. These actions are ever more important in an insurance industry awash with capital and at a time when falling bond yields will continue to challenge the profit and loss account through the balance of 2019 and into 2020.

Therefore, whilst we are pleased to be reporting a return to profitability during the first six months of 2019, we recognise the importance of continued focus on performance management to maintain this momentum throughout the balance of 2019 and in future years.

At the same time as ensuring that our market can deliver sustainable, profitable growth, we need to make some brave choices on how to meet the expectations of our customers and all our stakeholders into the future. We launched the prospectus for The Future at Lloyd’s on 1 May 2019. This document presented six possible solutions to the Lloyd’s market, to enable us to become the most customer-centric digital insurance and reinsurance platform in the world. We have conducted a consultation of unprecedented scale to inform the prospectus and receive feedback on the proposals. The response highlights strong market support to deliver each of the solutions, and we will be producing the first blueprint on 30 September representing how this strategy and the associated change programme is managed and progressed.

We will make sure that the blueprint builds on the investments the market has already made in technology and in its design of products and services. The Future at Lloyd’s strategy will ensure that our marketplace is ready for the challenges and opportunities presented by risk today.

We have also not hesitated to put in place a robust set of actions to tackle unacceptable behaviour around the Lloyd’s market to ensure that we set the tone for a culture that encourages the brightest minds to remain in and join our industry. The centrepiece of these actions is the commissioning of a Lloyd’s market-wide culture survey (supported by the Banking Standards Board), the insights of which are being developed into a set of measures to build a diverse and inclusive market in which everyone is respected and valued.

Profit before tax for the period is £2.3bn underpinned by a combined ratio of 98.8% (June 2018: profit before tax of £0.6bn and combined ratio of 95.5%). Gross written premiums for the year to June rests at £19.7bn, which represents a 1.8% increase over the same period in 2018. However, the elimination of foreign exchange rate movements and growth from new syndicates points to a like-for-like year-on-year reduction of 2.6%, being the net impact of a 6.5% reduction in business volumes and an average risk adjusted rate increase of 3.9%. These changes reflect the strengthened underwriting discipline being applied in 2019 post the underwriting performance seen in 2017 and 2018.

The reported combined ratio of 98.8% is a 3.3% increase compared to the same period in 2018 (June 2018: 95.5%). The underlying analysis is a little more encouraging: a combination of higher individual risk losses in the first half of 2019 and lower prior year releases of 0.4% in 2019 (June 2018: 3.8%) contributed to an increase in the loss ratio to 60.7% (June 2018: 56.2%); when we further analyse this the current underwriting year (2019) shows a reduction in the attritional loss ratio when compared to the 2018 underwriting year at the same point in time.

The operating expense ratio has reduced by 1.2% in the period, from 39.3% in 2018 to 38.1% in 2019. Lower administrative expenses, reflecting the continued effort by the market to manage its controllable costs, contributed a 1.5% reduction whilst there was a small increase, 0.3%, in the acquisition cost ratio from changes in the mix of business.

Investment income of £2.3bn made a significant contribution to our interim result, as the market benefitted from unrealised gains due to reducing US and UK bond yields as well as robust returns from equities in the first six months of 2019.

The quality of our balance sheet remains strong. Our overarching solvency coverage ratio has increased to 266% (December 2018: 249%). The financial strength of the market was underscored by the recent re-affirmations of our financial strength ratings by Standard & Poor’s – who additionally elected to revise their outlook on our market from “negative” to “stable” – AM Best and Fitch.

Looking ahead, our strategy for the Lloyd’s market includes specific initiatives to attract new funds to the market place.

This is a once-in-a-generation opportunity for the evolution of the Lloyd’s market place, and an exciting time for Lloyd’s to show leadership on the three key fronts of performance, strategy and culture. We are making good progress, with essential and valued support of all of our stakeholders.

John Neal

Chief Executive Officer