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Lloyd’s volumes up, but profits continue to shrink in first-half 2017

28th September 2017 - Author: Steve Evans

The Lloyd’s of London insurance and reinsurance market reported first-half 2017 profit of £1.22 billion ($1.58 billion) this morning, a decline on the prior year period. However the market also reported higher volumes of business, as new product lines start to help it to grow.

Lloyd's of London building at nightProfits at Lloyd’s are down almost 17%, from the £1.46 billion reported in the prior year, but at the same time the combined ratio is actually improved, at 96.9% in H1 2017, compared to 98% for the first-half of 2016.

That reflects the generally lower profitability of the insurance and reinsurance business and as a result Lloyd’s has also suffered a steep drop in return on capital to 8.9% (down from 11.7%).

A lower investment return also hasn’t helped the results, reporting 1.5% for H1 2017, down from 1.8% in H1 2016.

However the market’s resources have risen, which is positive given the high level of losses now facing Lloyd’s from recent catastrophe activity, with £28 billion of net resources now, up from £26.6 billion at the halfway point of 2016.

Positively though, the market reports, “Despite continuing pressure on pricing from excess capital and low interest rates, the development of new products has seen an increase in volumes.”

Again positively, the underwriting result is much improved, coming in at £0.37 billion this year, up from £0.21 billion in the prior year period.

This has improved thanks to the low level of losses in the first-half of the year, as well as actions taken to improve the performance of some lines of business and price or trading actions in other areas.

Lloyd’s Chief Executive, Inga Beale, commented on the results, “These results highlight the continued strength of the Lloyd’s market, but they do reflect the challenging conditions that have shaped the sector over recent years. Our focus on maintaining a strong underwriting discipline and concentrating on profitable lines of business is showing signs of success, but we cannot allow that focus to waver if we are to continue to ensure the Lloyd’s platform is the most attractive option for customers.

“Whilst these results do not cover the current hurricane season in the Caribbean and United States, the market is assessing claims and starting to make payments that will help local communities and businesses get back on their feet as quickly as possible. It is our ability to respond quickly and effectively in times like these that differentiates the Lloyd’s market and is ultimately what we are here to do.”

Lloyd’s faces a second half which will likely see its profits wiped out, if the size of the recent event loss estimates proves to be correct.

The improved underwriting result is positive, but the lower profit and return on capital both show that even Lloyd’s has to get to grips with being able to operate at lower-returns. Something that is unlikely to change significantly even after the major losses are factored into renewal pricing.

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