Lure of Lloyd’s remains as strong as ever despite dip in results
Interest in setting-up at Lloyd’s remains strong despite the market’s performance dipping last year on the back of competitive market conditions.
That is the conclusion of the Lloyd’s Update report, a report by Aon Benfield Analytics’ Market Analysis team, which assesses financial performance of Lloyd’s in the year to December 31, 2015 and the most recent developments in the market.
Underwriting and investment results both weakened in 2015. The market’s pre-tax profit fell by 30 percent last year to £2.1 billion and its return on capital dipped to 9.1 percent.
The report stressed that profitable growth is very hard to achieve in the current operating environment. At constant exchange rates, it showed that gross premiums written rose by 1.1 percent to £26.7 billion in 2015, despite an average renewal rate reduction of 4.6 percent.
Lloyd’s net expense ratio also breached the 40 percent threshold for the first time in 2015. The report noted that efforts to streamline operations across the London market have gathered pace over the past year, as leading industry bodies cooperate to drive a five year modernisation plan.
But the report also highlighted the many ways in which Lloyd’s remains attractive to many types of players and also the success of its efforts to diversify. It noted that a new platform has been established in Dubai and Lloyd’s expects to be underwriting Indian reinsurance business on an onshore basis in time for the April 2017 renewals.
Meanwhile, interest in setting-up at Lloyd’s remains strong. “For re/insurers looking to develop an international or specialty franchise, the market offers an unrivalled combination of access to diversified business and capital flexibility,” the report said.
Seven new syndicates were launched for 2016. “Lloyd’s continues to offer a very attractive environment for new businesses, particularly for insurers looking to develop an international or specialty franchise. The global licence network, Solvency II compliance and strong financial strength ratings potentially provide access to diverse profitable business, while partial mutualisation and the permitted use of letters of credit convey capital advantages, potentially resulting in higher premium leverage and enhanced returns,” the report said.
It also noted that recent industry consolidation has had a significant impact on Lloyd’s. Eight corporate transactions involving a Lloyd’s business were announced during 2015, affecting some 20 percent of market capacity.
It also said that ‘Brexit’ is not expected to have a significant impact on the Lloyd’s franchise. Only around 4 percent of Lloyd’s total business is considered to be at risk from the potential loss of membership of the single European market, the report pointed out.
