Chief Executive statement
The Lloyd’s market returned to profit in the first six months of 2018, following the severe catastrophe experience in 2017.
While the underlying numbers show some signs of improvement, the result also highlights ongoing challenges that are actively being addressed.
Lloyd’s aggregated market profit was £0.6bn for the first six months of 2018 (June 2017: £1.2bn). The decrease on the prior half year was driven by a comparatively low investment return of £0.2bn (June 2017: £1.0bn) and is consistent with the low returns seen across most asset classes over the period.
Lloyd’s capital position is at its strongest ever with net resources totalling £29.0bn (June 2017: £28.0bn, December 2017: £27.6bn) and Lloyd’s strong and secure financial position is underscored by our excellent ratings which were recently reaffirmed at A (Excellent) from A.M. Best, A+ (Strong) from Standard & Poor’s and AA- (Very Strong) from Fitch.
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. 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. Syndicates are being asked to conduct in-depth reviews of the worst performing 10% 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. The review process is robust and well-governed and has been undertaken by an experienced team at Lloyd’s. We are working closely with syndicates to ensure policyholders are protected.
These efforts have partly contributed to an improvement in the underwriting result of £0.5bn for the first six months of 2018 (June 2017: £0.4bn). Although this reflects the progress that has been achieved, it should not mask the importance of continued, concentrated market-wide efforts to deliver long-term sustainable profit through the very challenging market conditions that are likely to persist for some time yet.
Despite the difficult business environment, the combined ratio improved to 95.5% (June 2017: 96.9%), supported by a benign loss period and prior year releases. A moderate uptick in gross written premiums, totalling £19.3bn for the first six months of 2018 (June 2017: £18.9bn), is driven by sustainable improvements in pricing and growth in some profitable lines.
Lloyd’s is focused on the future, with a strategy that is under constant review to respond to the challenges and opportunities facing the market. Throughout 2018 our key priorities are improving underwriting performance, reducing expenses, and enhancing access to Lloyd’s through technology – supporting our digital evolution.
In July we launched the Lloyd’s Bridge pilot, an online portal that quickly and easily matches new binder or coverholder business in both established and high growth markets with Lloyd’s underwriters and brokers. Later this year we will launch the Lloyd’s Workbench pilot, an underwriting system where coverholders and syndicates can more efficiently manage risk transfer under a binder.
The Lloyd’s Lab, our new innovation accelerator launched in September, is helping to build a more sustainable and competitive insurance market by providing a dynamic 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.
In March we announced a mandate for electronic placement of risks to accelerate the market’s transformation from paper to digital and ensure the market realises the benefits of electronic placement. In Q2 Lloyd’s exceeded its target of 10%, with syndicates accepting 16.3% of in scope risks electronically. We expect to see higher rates of adoption as targets increase, which will further improve efficiency, reduce back office costs, and most importantly enhance customer service.
The Lloyd’s Corporation has worked tirelessly to secure the market’s access to the EU27 countries outside of any UK Government deal that is secured upon the UK’s exit from the European Union. The structures we are putting in place provide the market with an opportunity to enhance its profile and provide increased customer choice within the EU. Our new insurance subsidiary in Brussels received regulatory approval from the National Bank of Belgium in May and will be operational to write business in the European Economic Area from 1 January 2019.
I would like to thank the Lloyd’s market for their engagement and support as we work together to close the performance gap, establish Lloyd’s Brussels, and launch innovative solutions that will ensure we are well placed to thrive in a digital world. These actions demonstrate the scale of transformation already underway, and the Corporation’s commitment to implementing initiatives that will deliver long-term benefits for all Lloyd’s market participants, and safeguard the future of the Lloyd’s market.
Lloyd’s continues to lead the world in delivering innovative products and services to customers by providing essential, complex and critical coverage that is so needed to enable human progress. The Corporation will continue to look at how we can make the Lloyd’s platform more competitive, and to ensure that it can grow profitably in the future our current strategic focus is:
- Capital: maintaining Lloyd’s capital advantages, while making it more attractive to capital providers by simplifying the overall market structure
- Customers and Distribution: exploring ways customers can more easily and cheaply access the market
- Market Oversight: continuing to work with the market to close the performance gap and deliver superior operating returns
- Operations and Services: improving Lloyd’s infrastructure so that it can efficiently support the market with digital platforms
Finally, I announced in June that after careful consideration I have decided to step down after five years leading Lloyd’s. It is my honour and privilege to lead one of the most respected and trusted insurance brands in the world and I’m proud of the part I have played in securing Lloyd’s future. The progress we have made together with true collaboration across the entire London Market towards modernisation and digital transformation is profound. I’m also proud of the expanded access to new markets that Lloyd’s now has, and the progress that has been made towards building a more diverse and inclusive market. I’d like to take this opportunity to thank everyone for the support they have given me during my five years as CEO.
The world trusts Lloyd’s to be there when it matters the most and, with all the progress that has been made during my time here, I know I will leave Lloyd’s well placed for the years to come.
Inga Beale DBE
Chief Executive Officer