Analysts at Keefe, Bruyette & Woods (KBW) have contended that the Lloyd’s of London results for the first half of 2019 show necessary but insufficient improvements in the performance of the insurance and reinsurance marketplace.
Lloyd’s released its H1 results earlier this week, reporting a £2.3 billion profit before tax, accelerating rate increases, modest combined ratio improvement, and significantly better investment returns.
The uptick follows months of reforms enacted by CEO John Neal, which have aimed to turn around the worst-performing business in the marketplace.
However, while KBW believes that continuing combined ratio improvement is both necessary and likely, it also argues that Lloyd’s has not yet shown sufficient progress in fixing its performance.
For example, while the semi-annual combined ratio rose modestly year-on-year, it declined sequentially, reflecting catastrophe losses in the second half of 2018.
And while the semi-annual and trailing 12-months’ core combined ratio did both improve year-on-year, analysts at KBW say they still remain too high, especially given the Lloyd’s market’s historical exposure to major claims.
KBW also noted that current pricing trends have demonstrated that adequate or excess capacity doesn’t automatically preclude rate increases.
Analysts further acknowledged that the industry remains overpopulated and overly competitive, but contended that pricing is likely to respond once the inadequacy of expected returns becomes undeniable.