Lloyd’s expects to pay £5bn for COVID-19 customer claims; Underlying market performance improves substantially
Lloyd’s today confirmed it expects to pay out up to £5bn in COVID-19 customer claims on a gross basis*, with the publication of its 2020 Half Year Results. In the first six months of 2020, Lloyd’s COVID-19 claims after reinsurance recoveries totalled £2.4bn, contributing 18.7% to the market’s combined ratio of 110.4% and driving an overall market loss of £0.4bn.
Excluding COVID-19 claims, the market’s combined ratio has shown substantial improvement at 91.7%, down from 98.8% in H1 2019. This is supported by a 7.1 percentage point improvement in the attritional loss ratio which has dropped to 52.6%.
Lloyd’s strong capital and solvency position ensures it can withstand the ongoing impacts of COVID-19. The market’s net resources increased by 7.2% to £32.8bn as at 30 June 2020, reinforcing the exceptional strength of Lloyd’s balance sheet and a central solvency ratio of 250%**, which is expected to be at 200% for the second half of the year.
John Neal, Lloyd’s CEO said: “The first half of 2020 has been an exceptionally challenging period for our people, our customers, and for economies around the world. The pandemic has inflicted catastrophic societal and economic damage calling for unparalleled measures to stifle the spread of the virus, and to get businesses and economies back on their feet. Our half year results demonstrate that our robust approach to performance management and remediation has begun to take effect, evidenced by a significant turnaround in the underlying performance metrics, which give the truest indication of our market’s profitability.”
Lloyd’s 2020 Half Year Results in detail:
Lloyd’s today announced a loss of £0.4bn (pre-tax) for the first six months of 2020, driven by £2.4bn in COVID-19 losses contributing 18.7% to the market’s combined ratio of 110.4%. Excluding COVID-19 claims, the market’s combined ratio has shown substantial improvement at 91.7%, down from 98.8% in H1 2019.
The key figures reported in Lloyd’s 2020 Half Year Results are:
- Aggregated market loss of £0.4bn (June 2019: profit of £2.3bn)
- Gross written premiums of £20.0bn (June 2019: £19.7bn)
- Net investment income of £0.9bn, 1.2% return (June 2019: £2.3bn, 3.2% return)
- Combined ratio of 110.4% (June 2019: 98.8%)
- Net resources of £32.8bn (December 2019: £30.6bn)
- Central solvency ratio of 250% (December 2019: 238%)
Excluding COVID-19 losses, the market delivered an underwriting profit of £1.0bn, demonstrating a significant improvement in Lloyd’s underlying performance. This is supported by 7.1 percentage point improvement in the attritional loss ratio which has dropped to 52.6% in the first six months of 2020 (H1 2019: 59.7%), with prior year development remaining stable at 0.5% (H1 2019: 0.4%).
Gross written premiums of £20.0bn represent a 1.7% increase over the same period in 2019. However, eliminating foreign exchange rate movements, overall premium increased by just 0.1%. Positive rate momentum accelerated in the first six months of 2020, with the market achieving average risk adjusted rate increases on renewal business of 8.7%. This was offset by a 8.6% decrease in business volumes across the market, reflecting the market’s focus on the quality of the business it renews and underwrites.
The H1 2020 expense ratio dropped marginally from 38.1% to 37.7%, with the Future at Lloyd’s programme central to tackling total acquisition costs and administration expenses.
In the first six months of 2020, the market’s net resources increased by 7.2% to £32.8bn as at 30 June 2020 (FY 2019: £30.6bn), reinforcing the exceptional strength of Lloyd’s balance sheet with a central solvency ratio of 250%.
* £2bn of the gross £5bn COVID-19 pay outs are reinsured.
** Lloyd’s applied add-ons to its capital model to ensure the current risk profile is accurately reflected. These add-ons result in an estimated central solvency ratio of 200% at 26 August 2020.
- The Lloyd’s 2020 half-year results report is available at: www.lloyds.com/halfyearresults2020
- The Corporation has committed a £15m package of support for charitable organisations responding to the pandemic, together with £15m in seed capital investment to develop a Systemic Risk Centre of Excellence, which aims to better understand, model and provide insurance for systemic catastrophic events.
- Lloyd’s will be launching the Future at Lloyd’s Blueprint update in November this year, which will set out the roadmap for 2021 and beyond.
- 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.
- 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 amounted to £3.5bn at 30 June 2020 (December 2019: £3.3bn). The Society financial statements are drawn up under IFRS (as adopted by the EU).
- Lloyd’s strong financial strength ratings are A (Excellent) with a stable outlook by A.M. Best, AA- (Very Strong) on a negative watch by Fitch Ratings and A+ (Strong) with a stable outlook by Standard & Poor’s.
- 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.
- Foreign exchange rates may materially fluctuate from the rates prevailing at 30 June 2020 (£1 = US$1.24, £1 = €1.10). Premiums, claims and investment income are translated at the average exchange rate for the period to 30 June 2020 (£1 = US$1.26, £1 = €1.14).
- For further detail on any forward-looking statements please refer to the 2020 Half Year results.
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