The underlying underwriting performance at Lloyd’s stabilised over the first half of 2018 as rate increases fed through and the marketplace clamped down on underperforming syndicates, according to analysts at Peel Hunt.
However, Peel Hunt stated that more needs to be done to place the Lloyd’s market on a firmer footing and claimed that the Lloyd’s business model will struggle to generate attractive returns unless specialty insurance classes return to broad based profitability.
Lloyd’s combined ratio improved to 95.5% during H1 2018, from 96.9% in H1 2017, and underwriting results rose by £175 million to £541 million, although this was offset by a $831 million decline in investment returns that left overall pre-tax profits at £588 million, down from £1.2 billion in H1 2017.
Premiums also experienced an 8% boost after the market cycle bottomed out last year, resulting in a 3% rate increase across the market over H1 2018, weighted towards reinsurance and property lines.
Peel Hunt further noted that Lloyd’s underlying attritional CoR remains high but stable at 98.7%, compared with 96.6% in H1 2017 and 100% in H2 2017, with only three classes – Reinsurance, Casualty and Energy – delivering a profit over the first half of the year.
Whilst Lloyd’s has already undertaken in-depth reviews of its worst performing 10% of syndicate portfolios, Peel Hunt believes that much more remedial action will need to be carried out by the Lloyd’s performance management team to sufficiently improve underwriting discipline and lower exposures.
