Analysts at S&P Global Ratings anticipate that Lloyd’s will continue its profitable underwriting momentum in 2023.
The analysts note that Lloyd’s strong year-end 2022 underwriting results reflect its focus on underwriting controls and positive price increases.
Lloyd’s reported a net combined ratio of 91.9% for 2022, compared to 93.5% in 2021, which fares well with European reinsurance peers’, says S&P.
This was despite provisions of £1.4 billion for claims relating to the Russia-Ukraine conflict and £2.0 billion losses from Hurricane Ian, which were key contributors to major losses that added 12.7 percentage points to the combined ratio.
S&P analysts write, “We expect Lloyd’s will continue its profitable underwriting momentum into 2023 with a similar combined ratio to that in 2022.”
Lloyd’s year-end 2022 earnings were pressured by mark-to-market losses on its bond and equity portfolios during the year and it reported a net loss of approximately £800 million.
S&P anticipates mark-to-market losses on the bond portfolio will unwind as the portfolio reaches maturity, keeping in mind the average duration of the bond portfolio is less than three years.
Meanwhile, the analysts expect Lloyd’s net earnings will recover to about £3.0 billion in 2023, on the back of strong underwriting and higher investment income due to increased interest rates.
S&P concludes, “Lloyd’s is in a good position to navigate the challenges the insurance sector faces in 2023, including elevated inflation and uncertainty around the resolution of the Russia-Ukraine conflict.
“This is thanks to Lloyd’s enhanced governance for ensuring disciplined underwriting; its robust capital position above the ‘AAA’ level–measured using our capital model; its market-wide solvency coverage ratio exceeding 185%; and its central fund solvency ratio exceeding 400% as of year-end 2022. We expect Lloyd’s will maintain its ‘AAA’ risk-based capital over 2023.”
