Beneath the surface, weakening pricing is impacting accident year underwriting margins and the market’s overall expense ratio is rising, giving renewed impetus to the need to maintain underwriting discipline and drive business process improvements. On the plus side, the balance sheet remains strong and the inherent advantages of operating at Lloyd’s continue to attract strong investor interest.”
Key findings include:
Lloyd’s 1H 2015 Results
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Gross premiums written totalled GBP15.5 billion in 1H 2015, up 1.4% at constant exchange rates. In the aggregate, risk-adjusted rates fell by 4.6%.
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Underwriting profit fell by 12% to just under GBP1.1 billion. The combined ratio stood at 89.5% (1H 2014: 87.4%), with major losses contributing 2.7pp (1.4pp).
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Favourable development of prior year reserves rose by 6% to GBP0.8 billion, benefitting the combined ratio by 8.0pp (8.0pp).
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On a pure accident year basis, the combined ratio stood at 97.5% (95.4%), with all major reporting classes other than Property and Reinsurance reporting underwriting losses.
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The investment return halved to GBP339 million, representing an annualised yield of 1.2% (2.6%), driven by economic volatility in Europe in June and the continued low interest rate environment.
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Pre-tax profit fell by 28% to GBP1.2 billion, representing an annualised return on capital employed of 10.7% (16.3%).
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Overall net resources fell by 2% to GBP22.8 billion over the six months to June 30, 2015, driven by the distribution of earned profit to members.
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Funds at Lloyd’s supporting members’ underwriting commitments rose by 3% to GBP16.2 billion, of which 50% was held in the form of letters of credit and bank guarantees.
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Mutual assets rose by 3% to GBP2.7 billion, including the Central Fund of GBP1.7 billion and subordinated debt of GBP0.9 billion.
Looking Ahead to 2016
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Lloyd’s continues to attract strong interest from new and existing investors, as evidenced by high levels of corporate activity in the market.
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Five Lloyd’s managing agents are likely to change hands in the next few months, as part of broader acquisitions (Amlin, Chubb, HCC, Pembroke and Sirius).
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Three new syndicates (Probitas 1492, Everest Re 2786 and Credit Suisse 1856) and at least two new special purpose syndicates are being formed for the 2016 year of account.
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Lloyd’s has been considering ways in which structures could be developed that would be attractive to alternative capital. A progress report will be published prior to the end of 2015.
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Lloyd’s opened its Beijing office and launched its Dubai platform in March. Since then, the market has received formal permission to open offices in Colombia and Mexico.
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Lloyd’s has submitted its Solvency II internal model application to the Prudential Regulatory Authority and is seeking approval by the year-end.
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Efforts to streamline operations and reduce costs across the London market have gathered pace over the past year, as leading industry bodies cooperate to drive a five year modernisation plan.
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