Lloyd’s reports £2.1bn profit for 2016
Lloyd’s, the world’s specialist market for insurance and reinsurance, today announced a profit of £2.1bn for 2016 despite the combined ratio moving from 90.0% to 97.9%.
- Pre-tax profit of £2.1bn (2015: £2.1bn).
- Return on capital of 8.1% (2015: 9.1%).
- Combined ratio of 97.9% (2015: 90.0%).
- Gross written premiums increase to £29.9bn (2015: £26.7bn).
- Major claims for 2016 were £2.1bn (2015: £0.7bn)
Conditions over the course of the year were extremely challenging with continued downwards pressure on pricing whilst traditional and alternative capital remained attracted to the insurance industry.
The level of Lloyd’s major claims, £2.1bn, was the fifth highest since the turn of the century and above the long-term average. This was due primarily to Hurricane Matthew and the Fort McMurray Wildfire in Canada.
The lower underwriting result in 2016 was offset by significantly improved investment returns, driven by a downward yield shift in the bond markets, and foreign exchange gains, principally caused by sterling depreciation.
In addition, syndicates writing motor reinsurance and direct motor and UK liability business have been impacted by the recent announcement to change the discount rate to negative 0.75% (the Ogden tables) applying to lump sum liability claims.
Lloyd’s has continued to enjoy progress across its major global markets: securing its position as the leading provider in excess and surplus lines in the United States; transferring over half its managing agents to the Shanghai and Beijing platforms; and being granted final approval to open an onshore office for reinsurance in Mumbai.
It was also confirmed that following the United Kingdom’s decision to leave the European Union, a subsidiary office will be opened in Brussels with the intention that it will be operational for the January 1st renewal season in 2019.
Chief Executive Inga Beale said the figures underlined the need for the Corporation, the body that oversees the market, to deliver real value for money; to focus on underwriting oversight and reduce its cost base.
Commenting on the results, she said:
“This has been a year of challenge for the insurance sector with premiums once more under continued downward pressure. It is vital that the Corporation does everything it can to support the market and make the platform attractive, whilst demonstrating value for money.
“Our collective focus must be on providing customers with the products they want, embracing innovation and modernisation. 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. It is critical throughout 2017 we continue to demonstrate that Lloyd’s is the home for creativity and expertise.”
The results confirm that we must have an unrelenting focus on underwriting discipline through 2017. The challenge for all of us is to reduce the cost of conducting business because within the market this is impacting on already thin underwriting margins.Lloyd’s Chairman, John Nelson
This is my final set of annual results as Lloyd’s Chairman, and in the years since we launched our long term strategy Vision 2025, our global reputation and brand has significantly strengthened; we have substantially improved our global market access; our modernisation programme has real momentum; our increased financial strength and overall financial performance is a tribute to the underwriting skills in the Lloyd’s market. All of this puts Lloyd’s in a strong position both to take advantage of the long-term opportunities available to us globally in the specialist insurance market and to face the many challenges we have.
Results at a glance
|Profit (before tax)||£2.1bn||£2.1bn|
|Investment return||£1.3bn (2.2%)||£0.4bn (0.7%)|
|Return on capital||8.1%||9.1%|
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- Lloyd’s 2016 Annual Report can be accessed at www.lloyds.com/annualreport2016
- A combined ratio is a measure of an insurer’s underwriting profitability based on the ratio of net incurred claims plus net operating expenses to net earned premiums. A combined ratio of 100% is break even (before taking into account investment returns). A ratio less than 100% is an underwriting profit.
- The metrics referred to in this release are defined in sections 5.7 and 5.8 of the 2016 Annual Report, which includes details on financial metrics considered by Lloyd’s to be Alternative Performance Measures (APMs).
- Central assets include the assets of the Central Fund and the other assets of the Corporation. In aggregate, the value of Lloyd’s central assets, excluding the callable layer and the liability in respect of the subordinated debt and securities, amounted to £2,879million at 31 December 2016. The Society financial statements are drawn up under IFRS (as adopted by the EU).
- Lloyd’s is rated AA- (very strong) with Fitch, A+ (strong) with Standard & Poor’s and A (excellent) with A.M. Best.
- Members’ resources operate on a several basis and are only available to meet each member’s share of claims. Central assets are available at the Council’s discretion to meet the liabilities of any member on a mutual basis.
- This press release includes forward-looking statements. These statements are based on currently available information. They reflect Lloyd’s current expectations, projections and forecasts about future events and financial performance. All forward-looking statements address matters that involve risks, uncertainties and assumptions. Based on a number of factors, actual results could vary materially from those anticipated by the forward-looking statements. These factors include, but are not limited to, the following:
- Rates and terms and conditions of policies may vary from those anticipated.
- Actual claims paid and the timing of such payments may vary from estimated claims and estimated timings of payments, taking into account the preliminary nature of such estimates.
- Claims and loss activity may be greater or more severe than anticipated, including as a result of natural or man-made catastrophic events.
- Competition affecting the basis of pricing, capacity, coverage terms or other factors may be greater than anticipated.
- Reinsurance placed with third parties may not be fully recoverable, or may not be paid on a timely basis, or such reinsurance from creditworthy reinsurers may not be available or may not be available on commercially attractive terms.
- Developments in the financial and capital markets may adversely affect investments of capital and premiums, or the availability of equity capital or debt.
- Changes in legal, regulatory, tax or accounting environments in relevant countries may adversely affect (i) Lloyd’s ability to offer its products or attract capital, (ii) claims experience, (iii) financial return, or (iv) competitiveness.
- Economic contraction or other changes in general economic conditions could adversely affect (i) the market for insurance generally or for certain products offered by Lloyd’s, or (ii) other factors relevant to Lloyd’s performance.
- The foregoing list of factors is not comprehensive, and should be read in conjunction with other cautionary statements that are included herein or elsewhere. Lloyd’s undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.
- Foreign exchange rates may materially fluctuate from the rates prevailing at 31 December 2016 (£1 = US$1.24, £1 = €1.17). Premiums, claims and investment income are translated at the average exchange rate for the year to 31 December 2016 (£1 = US$1.35, £1 = €1.22).
For further information, please contact:
Tel: +44 (0)20 7327 6272
Michelle Cunningham or Nicola Hartley
Tel: +44 (0)20 7327 5434
Tel: +44 (0)20 7327 5757
Lloyd's is the world's only specialist insurance and reinsurance market that offers a unique concentration of expertise and talent, backed by strong financial ratings and international licences. It is often the first to insure new, unusual or complex risks, providing innovative insurance solutions for local, cross border and global risks. Its strength lies in the diversity and expertise of the brokers and managing agents working at Lloyd’s, supported by capital from across the world. In 2017, more than 80 syndicates are underwriting insurance and reinsurance at Lloyd's, covering all lines of business from more than 200 countries and territories worldwide. Lloyd's is regulated by the Prudential Regulatory Authority and Financial Conduct Authority.