Lloyd’s returns to profit for the first half of 2018
The key financial figures are:
- Pre-tax profits of £0.6bn (June 2017: £1.2bn)
- Combined ratio of 95.5% (June 2017: 96.9%)
- Annualised return on capital of 4.3% (June 2017: 8.9%)
- Investment return of 0.3% (June 2017: 1.5%)
- Net resources of £29.0bn (June 2017: £28.0bn)
The market’s return to profit follows the severe catastrophe experience in 2017, with the result supported by an improved combined ratio of 95.5% (June 2017: 96.9%). Lloyd’s also reported a modest increase in gross written premiums to £19.3bn (June 2017: £18.9bn), driven by improvements in pricing and growth in some profitable lines.
The reporting period also featured an improvement in the underwriting result up to £0.5bn from £0.4bn last year. This partly reflects Lloyd’s ongoing work that commenced in 2017 to review the worst performing portfolios, and the subsequent action by the market to reduce loss making lines.
Pre-tax profits were impacted by a reduced investment return of £0.2bn (June 2017: £1.0bn), which 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). Lloyd’s strong and secure financial position is underscored by our ratings which were recently reaffirmed at A (Excellent) from A.M. Best, A+ (Strong) from Standard & Poor’s and AA- (Very Strong) from Fitch.
Lloyd’s Chief Executive, Inga Beale, said:
“These results and return to profit demonstrate the strength of the Lloyd’s market following one of the costliest years for natural catastrophes in the past decade. Whilst these results are welcome, Lloyd’s continues to concentrate on improving the Lloyd’s market’s long-term performance by taking action to address underperforming areas of the market.
“The Corporation also remains focused on making the Lloyd’s platform more competitive. Alongside the success of the mandate for the placement of electronic risks, we have recently launched the Lloyd’s Lab, our new innovation accelerator, which will help Lloyd’s use technology to better serve our customers around the world. We have also worked tirelessly to secure the Lloyd’s market’s access to the EU27 and our Lloyd’s Brussels subsidiary will start writing business in the European Economic Area from 1 January 2019.”
- Lloyd’s 2018 Interim Report can be accessed at: www.lloyds.com/interimreport2018.
- 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 the 2018 Interim 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 £3.1bn at 30 June 2018 (June 2017: £2.9bn). 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 bases 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 30 June 2018 (£1 = US$1.32, £1 = €1.13). Premiums, claims and investment income are translated at the average exchange rate for the period to 30 June 2018 (£1 = US$1.38, £1 = €1.14).