“A really strong set of results” - Lloyd's H1 2021
This morning the Lloyd’s CEO John Neal released “a really strong set of results” for H1 2021.
Almost all metrics are moving in a favourable direction compared to H1 2020:
- 8% increase gross written premium
- 4.8% point improvement in the ex-Covid combined ratio to 92.2% (97% in 2020)
- 1.9% point improvement in the expense ratio
- £1.43bn profit
- £628m investment return (down from £940m in H1 2020)
The previous period’s results were heavily impacted by Covid-19 losses, so the headline change in profitability from -£438m to a profit of £1.43bn does not tell the whole story about Lloyd’s performance in the first half of 2021.
Lloyd’s is now, according to Neal, “operating in a good, but not a hard market” with the exceptions of cyber and D&O. He went on to comment that “the hard years of remediation have been completed” although the work to improve the book never stops. As ever, the syndicate results present a wide range of results with the top quartile delivering a sub-90% combined ratio for the period whilst around a dozen laggard syndicates’ contribution were not deemed satisfactory.
The underlying attritional loss ratio continued to improve, reducing from 52.6% (H1 2020) to 50.5% driven by the very widely reported continuation of rate growth. Lloyd’s measured risk adjusted rate growth over the period of 9.9%, compounding the uplift from earlier years including the 8.8% growth in H1 2020. Lloyd’s has now seen fifteen consecutive quarters of rate rises.
Positive news continued with the confirmation that Lloyd’s Covid loss estimates have not materially changed in the period. 80% of notified claims have been paid and of the £3.4bn reserved for the claims, about 50% remain in IBNR – that is for claims that may have been incurred but have not yet been reported. Lloyd’s is remaining very cautious on Covid losses and believes its reserves should avoid any future deterioration.
The first half of the year is typically the most benign for the market given that the US wind season falls predominantly in the third quarter, so a 92.2% combined ratio is both welcome and expected. The major loss event in H1 2021 was winter-storm Uri which brought freezing temperatures to Texas. This was a unanticipated loss but clearly not sufficient to impact the overall profitability of Lloyd’s over the period. Recent events which fall outside the period being reported include the European floods and of course Hurricane Ida. It is still too early to comment on how these events might impact the full-year 2021 results, but Ida especially is very much an ‘expected’ loss for the market. John Neal was at pains to explain that Lloyd’s is happy with their pricing of catastrophe risk and that the market will deliver profitable results when catastrophe events are within the normal bounds of expectation. It remains to be seen whether 2021 will be a normal or an abnormal year for catastrophes which is why we are constantly on the look-out for US hurricanes and other events.
Burkhard Keese – the Lloyd’s CFO – spent some time explaining the impact of the financial performance on the balance sheet. Capital has increased by 7.6% and the central solvency ratio has increased from 209% to 218%. The is the amount of capital held to be able to cover a 1-in-200 year event plus a 25% buffer. Clearly Lloyd’s is well capitalised and continues to strengthen its balance sheet as performance improves. Another boost to the capital position has been the Central Fund reinsurance cover which was announced earlier in the year. This offensive and defensive measure helps protect Lloyd’s from calls against the central fund, but also frees up capital to allow the market to grow without the requirement for members to put up more funds at Lloyd’s (FAL).
In closing the presentation, Neal reiterated the four strategic pillars for Lloyd’s:
- Performance – profitable H1 operations are welcome, but the job is not complete
- Digitalisation – long held ambition to digitalise the market should result in cost savings in the future
- Purpose – sustainability, climate and inclusion are at the heart of Lloyd’s today ensuring that the market can remain as relevant as possible in the future
- Culture – reconnect the market as we return to EC3 and forge an inclusive culture that attracts and retains talent
Tomorrow will bring challenges and opportunities, but “we are in good shape” Neal confirmed today.
Who to Contact
Andrew ColcombHead of Syndicate Research, APCLDirect line: +44 (0)20 7825 7176
Jed RomanResearch AnalystDirect line: +44 (0)20 7825 7177Email: Jed.Roman@ArgentaGroup.com