Lloyd's, 1H2018: return to profit and a large-scale transformation underway

After the severe catastrophe experience in 2017, resulting in a loss of GBP 2 billion, Lloyd's of London books returned to black in the first half of 2018, with a pretax profit of GBP 588 million supported by an improved combined ratio of 95.5%.

Although positive, the result is still at half compared to 1H2017, when pretax profit reached GBP 1.2 billion. The decrease in the prior half year was driven by a comparatively low investment return of GBP 0.2 billion (June 2017: GBP 1.0 billion) and is consistent with the low returns seen across most asset classes over the period, the outgoing Lloyd's CEO Inga BEALE explained in her statement on the market's website.

Lloyd's also reported a modest increase in GWP to GBP 19.3 billion (June 2017: GBP 18.9 billion), driven by improvements in pricing and growth in some profitable lines. The market's return to profit was supported by an improved combined ratio of 95.5% (June 2017: 96.9%), as well as by an improvement in underwriting results up to GBP 0.5 billion from GBP 0.4 billion last year. This partly reflects the ongoing work that Lloyd's commenced in 2017 to review the worst performing portfolios and take action to reduce loss creating lines.

Lloyd's capital position is at its strongest ever with net resources totaling GBP 29.0 billion (June 2017: GBP 28.0 billion). Lloyd's strong and secure financial position is underscored by our ratings which were recently reaffirmed at A (Excellent) from A.M. Best, A+ (Strong) from Standard & Poor's and AA- (Very Strong) from Fitch.

"These results and return to profit demonstrate the strength of the Lloyd's market, following one of the costliest years for natural catastrophes in the past decade. While these results are welcome, Lloyd's continues to concentrate on improving its long-term market performance by taking action to address underperforming areas of the market. The Corporation also remains focused on making the Lloyd's platform more competitive. Alongside the success of the mandate for the placement of electronic risks, we have recently launched the Lloyd's Lab, our new innovation accelerator, which will help Lloyd's use technology to better serve our customers around the world. We have also worked tirelessly to secure the Lloyd's market access to the EU27 and our Lloyd's Brussels subsidiary will start writing business in the European Economic Area from January 1 2019," Inga BEALE commented.

She has also stressed out that Lloyd's market's focus remains on improving long-term performance by taking positive action to address areas of the market that are underperforming, as some syndicates and certain lines of business have a disproportionate negative impact on the market's profitability. Thus, syndicates are being asked to conduct in-depth reviews of the worst performing 10% of their portfolios, along with all loss-making lines, and submit their relevant remediation plans for approval as part of the 2019 business planning process.

Commenting on the preparations for the post-Brexit era,m Beale said: "The Lloyd's Corporation has worked tirelessly to secure the market's access to the EU27 countries outside of any UK Government deal that is secured upon the UK's exit from the European Union. The structures we are putting in place provide the market with an opportunity to enhance its profile and provide increased customer choice within the EU. Our new insurance subsidiary in Brussels received regulatory approval from the National Bank of Belgium in May and will be operational to write business in the European Economic Area from 1 January 2019."

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