16 October 2013

Poor investment results blot many positives for Lloyd’s

Poor investment results hit the performance of the Lloyd’s Market in the first half of 2013 – but the market still grew overall and remains a very attractive proposition for investors.

The market reported a 10 percent decline in pre-tax profit to £1.38 billion mainly driven by a reduction in the total investment yield from 1.2 percent to only 0.5 percent. But strong underwriting returns still mean the market made an annualised return on capital of 14 percent.

The figures were analysed in the latest Lloyd’s Update report published by Aon Benfield Analytics’ Market Analysis team, which covers the market’s financial results in the first half of 2013 and business position going into 2014.

The report said the weak investment returns were caused by the low interest rate environment and the negative impact of rising yields on bond valuations in May and June.

The market also saw growth in this period, however. Gross premiums written rose by 5 percent to £15.5 billion, driven by risk-adjusted rate increases (1 percent), positive foreign exchange movements (2 percent) and organic growth (2 percent).

Its prior year reserve releases increased to £779 million, or 8.1 percent of net premiums earned, while major losses were almost half the long term average at just £230 million, or 2.4 percent. Together these contributed to one of Lloyd’s best ever first half underwriting performances – a combined ratio of 86.9 percent.

The report also noted that the continued attractiveness of the Lloyd’s platform has been demonstrated by high levels of M&A activity in 2013 and the approval in principal of three new syndicates for 2014.

Rating agencies AM Best and Fitch recently joined Standard & Poor’s in revising the outlook on their Lloyd’s financial strength ratings from stable to positive.

Mike Van Slooten, international head of Market Analysis at Aon Benfield Analytics, said: “Lloyd’s results in the first half of 2013 extended an impressive track record and investor interest remains at high levels. These traits are likely to be rewarded with rating upgrades over the next 12 months, which in turn will potentially widen the market’s access to business.”

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