Lloyds, Hiscox and Beazley result update

Lloyd's, Hiscox and Beazley all report positive 2022 underwriting results and are positioned for further growth in 2023

Lloyd’s, and Hiscox and Beazley, two of the major insurers based in the market have provided trading updates and results statements over the past couple of weeks. We provide some edited highlights of the reports, with each stating much improved trading conditions and strong underwriting results.

Lloyd’s CEO (John Neal) said: “Today we are presenting an underwriting performance and capital position as good as Lloyd’s has reported in recent memory. 2022 showed both strong premium growth and a continued fall in expenses, which, alongside a high-quality balance sheet demonstrate that our market is in the best shape to offer both an attractive return to capital and investors as well as providing businesses the insurance protection they need in these uncertain times.”

Lloyd’s will announce its final FY2022 results on 23 March 2023, subject to the completion of all relevant audit and assurance requirements by its auditors and approval by Lloyd’s Council.

Rob Childs (Chairman of Hiscox) commented Hiscox had produced “a strong underwriting result…..which is down to the hard work over the last few years… and a credit to Aki Hussain (Group CEO) and the strong leadership team. The underwriting result is a reflection of improvements to the overall portfolio and we are well positioned for 2023”.

Similarly Adrian Cox (Group CEO of Beazley) commented that Beazley had experienced “…..a strong underwriting result…..which reflects the hard work of the last few years… and demonstrates our resilience to the unexpected”.

Both Hiscox and Beazley referred to the unprecedented geo-political challenges globally, the seismic shift in the reinsurance market at 1 January and the opportunity and positive environment for growth in 2023 which had not been prevalent for many years.

However, the underwriting results across the board had been impacted by mark-to-market investment losses, where increasing interest rates had reduced the value of fixed income bonds, which in most cases represent a high overall percentage of the respective investment portfolios. Initial forecasts for 2023 are already suggesting the investment position is more benign and the yields on investments were already improving.

Results overview

Lloyds reported that Gross Written Premium (GWP) increased by over 19% to more than £46bn (FY 2021: £39.2bn) reflecting a combination of growth from the strong USD (8%) direct price increases (8%) and organic growth (3%).

The underwriting performance continued to improve more than expected by 1.6 percentage points to deliver a combined ratio of 91.9% (2021: 93.5%), despite major claims of 12.7% including losses arising from the conflict in Ukraine and from Hurricane Ian in Florida.

The attritional loss ratio has improved to 48.4% (FY 2021: 48.9%), prior year releases were 3.6% (FY2021: 2.1%) and the expense ratio dropped to 34.4% (FY 2021: 35.5%).

The investment loss will result in a full year loss before tax of approximately £0.8bn (FY2021: profit £2.3bn).

Hiscox reported an increase in GWP of 7.1% with an overall CoR of 90.6%. This produced the best underwriting result for over 7 years with a profit of £270m representing a 25% increase on prior year.

Retail combined produced a CoR of 94.8% and London Market a CoR of 84.8% (the third year in a row it has been in the 80s)

Re-insurance and ILS had a solid CoR of 81.6% despite Hurricane Ian losses.

Beazley reported sustained premium growth and now write $5bn gross premium which is a 14% increase year-on-year. Overall results produced an underwriting profit of $191m (2021 : $369.2) and a return on equity of 7% with a combined ratio of 89% (2021 : 93%). Beazley guidance to the market for 2023 will target a CoR of mid-to-high 80%.

Outlook for 2023

Lloyds will continue to apply the same rigour to syndicate performance in 2023 where it will look to grow in pockets of business. CFO Burkhard Keese commented that he believed the market would “stay firm” in 2023 and was confident that 3-4% organic volume growth could be achieved. But he also warned of the imperative to “control your underwriting” in long-tail lines such as cyber. “That is a very new class, not really mature, and Lloyd’s will only allow growth for underwriters who are really proficient in underwriting of cyber,” he added.

Hiscox London Market and retail both predicted to grow in 2023 (5-15% range) with UK under new leadership and US technology transformation now complete.

A new ESG syndicate (nested within Syndicate 33) will be launched to provide additional capacity to clients with good ESG credentials. This will be focussed on specialist areas and new capabilities utilising a 3rd party screening tool to ensure ESG criteria is met.

Beazley’s guidance to the market for 2023 will target a Combined Ratio of “mid to high 80s”. They have moved Syndicate 5623 (Smart Tracker) from an SPA to a stand-alone syndicate, with third party capital now providing capital directly to the syndicate, rather than re-insuring Beazley. The gross premium for 5623 will no longer sit on the Beazley balance sheet, but will be credited direct to third party capital providers (Smart Tracker now writes over $300m)

Beazley is planning for mid-teens growth gross for 2023 (mid-20s net).

Jargon buster – the combined ratio (CoR) is an indicator of insurer performance. It is the ratio of claims and expenses (including costs paid to brokers to access business) to premiums. Lower is better; at 100% the insurer is breaking even from its underwriting activities (although the final result will depend on performance of investment). A combined ratio of 92% (as Lloyd’s has achieved) indicates a profit margin of 8p per £1 of premium income.