Lloyd’s built 2023 margin gain on distance to large loss, despite PYD
Lloyd's built its previously-announced 8.2 point improvement on its aggregate combined ratio on a reduction in large loss and improvements for most key segments, but with the balance on prior period reserving suddenly ceasing to bolster the profit tally, the final full-year aggregated results showed.
“This is an exceptional year, it is difficult to repeat, but the key is to maintain the current level of underlying performance,” CFO Burkhard Keese said of what he acknowledged was “not a heavy cat year.”
Major claims slid to a mere 3.4% of NEP, down nearly 9 points from the prior year reading and 7 points on the 5Y average to points “below the expected level for any one year,” management admitted in the full-year report. “The shape and composition” of the Lloyd's book brought “relatively low exposure” to the headline events of the year. An adjusted combined ratio excluding major claims and cats would have been flat year on year.
Lloyd's management preferred to highlight a combination of “strong underwriting action” and “positive pricing” behind the previously announced 157% gain in underwriting profit to £5.54 billion.
Those boosters were led by “the property segment in particular, partially offset by less attractive conditions in some areas of casualty”.
Amongst major business lines, Lloyd's segment tables pointed to a 3.6x increase in underwriting profits for property on a 22% increase in GWP. That was followed by more modest gains just under 20% for the combined marine, aviation and transport as well as third party liability. But the specialty lines continued to grow, with GWP up 15%, versus a near complete premium stall in third party liability. Earnings fell away in accident and health.
Prior year reserve development ended a multi-year run of having boosted profits. Net reserve strengthening of £5m was neutral to loss ratios (versus 1.5 pt favourable impact in 2022) as specialty and casualty lines merited further prudence, even after some loss portfolio transfer deals.
“Releases were reported across all lines of business other than Specialty and Casualty reinsurance (impacted by reinsurance to close and loss portfolio transfer transactions) and Aviation, where carriers have reported reserve strengthening in respect of the losses arising from the Russia/Ukraine conflict,” management wrote.
Heavy reserving was not required in US casualty as “we have always accounted for social inflation,” Keese said. “We had no need for a strong reserve increase in in 2023 like other companies had.”
On the top line, gross written premium rose 12.2% to £54.54 billion, led by reinsurance and property, each adding above £2 billion to the prior year tally. In percentage terms, property led at 22% y/y, followed by 15% in specialty and 13.4% in reinsurance.
That top line growth came in several points below plan, a gap explained by conservatism around stressed lines, CFO Burkhard Keese indicated. Syndicates had “originally intended to grow more in D&O and cyber,” Keese said, but “market conditions did not allow for this.”
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