30 March 2017Insurance

Lloyd’s posts jump in combined ratio, large claims in 2016

London-based specialist re/insurance market Lloyd’s of London has, in 2016, recorded the fifth highest level of major claims since the turn of the century, the company said in a statement.

The deterioration of the market’s underwriting profitability was, however, offset by improved investment returns.

Major claims rose to £2.1 billion in 2016 from £0.7 billion in the previous year, primarily due to Hurricane Matthew and the Fort McMurray Wildfire in Canada.

The combined ratio increased to 97.9 percent from 90.0 percent over the period.

Operating conditions in 2016 were “extremely” challenging with continued downwards pressure on pricing whilst traditional and alternative capital remained attracted to the insurance industry, Lloyd’s said.

“The results confirm that we must have an unrelenting focus on underwriting discipline through 2017," said John Nelson, Lloyd’s chairman. "The challenge for all of us is to reduce the cost of conducting business because within the market this is impacting on already thin underwriting margins."

The lower underwriting result in 2016 was, however, offset by significantly improved investment returns, driven by a downward yield shift in the bond markets, and foreign exchange gains, principally caused by sterling depreciation, Lloyd’s noted.

Improved investment returns enabled Lloyd’s to keep pre-tax profit stable year-on-year in 2016 at £2.1 billion.

Gross written premiums increased in 2016 to £29.9 billion from £26.7 billion in 2015.

Lloyd’s underlined its achievements in 2016 in expanding in global markets by securing its position as the “leading provider in excess and surplus lines in the United States”, by transferring over half its managing agents to the Shanghai and Beijing platforms; and by being granted final approval to open an onshore office for reinsurance in Mumbai.

“The market has shown how well it reacts to the demands of its customers in a rapidly changing risk environment with the considerable increase in cyber coverage throughout 2016 a perfect case in point,” said CEO Inga Beale. “It is critical throughout 2017 we continue to demonstrate that Lloyd’s is the home for creativity and expertise.”

Beale explained that the results underlined the need for the Corporation, the body that oversees the market, to deliver real value for money; to focus on underwriting oversight and reduce its cost base.

“This has been a year of challenge for the insurance sector with premiums once more under continued downward pressure,” Beale said. “It is vital that the Corporation does everything it can to support the market and make the platform attractive, whilst demonstrating value for money.”

Lloyd’s has also confirmed that following the United Kingdom’s decision to leave the European Union, it will open a subsidiary office in Brussels with the intention that it will be operational for the Jan. 1, 2019 renewal season.

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More on this story

31 March 2017   An unspectacular increase in large claims led Lloyd’s of London to report underwriting losses in all classes in the accident year 2016, driving the management to take action to improve underwriting quality and expenses.
13 December 2016   John Nelson and Inga Beale, the chairman and chief executive of Lloyd’s respectively, have warned that the solid performance the market has enjoyed this year, barring any major catastrophe claims in the next two weeks, simply masks a deteriorating and worrying trend: that current year underwriting is not profitable in aggregate at the moment.
16 June 2017   In his first speech as Lloyd’s new chairman, Bruce Carnegie-Brown said the insurance industry must do more to change and innovate or run the risk of being disrupted by external players.