Lloyd’s reserving £4.6 billion for COVID and Ukraine

Lloyd’s current reserves for COVID-19 related losses and losses relating to the war in Ukraine currently stand at well over 4 billion, the Corporation confirmed as it released its full year results for 2022.

According to the Corporation, COVID-19 reserves remain stable at £3.2bn, including 22% IBNR. It also is booking £1.4bn net reserves for Ukraine losses, where IBNR makes up 90% of the net ultimate loss estimate. 

A large proportion of the potential claims from Ukraine relate to ongoing litigation relating to stranded aviation assets.

For example, AerCap, the world’s largest owner of commercial aircraft, is taking action against Lloyd’s (as well as AIG and Fidelis) after its planes were stranded in the aftermath of the invasion, and lodged a lawsuit in London’s High Court last June, seeking up to $3.5bn in relation to 116 stranded aircraft and 23 engines. 

The company claims it is owed $3.5bn under a broader all-risks insurance policy or $1.2bn under a specific war risks policy, led by Lloyd’s, if the larger claim fails. Other aircraft-leasing companies with planes stranded in Russia have also brought claims in London’s High Court.

The reserving confirmation came as Lloyd’s also noted that gross written premium (GWP) increased in FY2022 by 19% to £46.7bn (FY2021: £39.2bn), including 4% volume growth.

Lloyd’s recorded an underwriting profit of £2.6bn (FY2021: £1.7bn) and a combined ratio of 91.9% – a 1.6 percentage point improvement and the strongest result since 2015. In a year that saw major losses contribute 12.7% to the combined ratio – including substantial claims from the conflict in Ukraine and Hurricane Ian in the US – Lloyd’s said it paid out over £21bn to policyholders.

The attritional loss ratio also  improved again to 48.4% (FY2021: 48.9%) while the expense ratio improved by 1.1 percentage points to 34.4% (FY 2021: 35.5%), which Lloyd’s said reflects efforts to deliver strong performance and reduce the cost of doing business at Lloyd’s. Indeed, with prices increasing by 8%, the Lloyd’s market  said it has now seen 20 consecutive quarters of positive price improvement.

Mark-to-market accounting rules on fixed income investments led to an overall loss of £0.8bn, however Lloyd’s said this loss is expected to reverse in the coming years as assets reach maturity and benefit from favourable interest rates.

John Neal, CEO of Lloyd’s said: “This is an outstanding underwriting result that follows several years of performance improvement, a comprehensive plan to digitalise our market, steady and sustained progress on our culture and purposeful action to help our industry and society manage the biggest challenges of our time.”

“Looking to 2023, Lloyd’s expects strong premium growth to around £56bn, a combined ratio below 95% and a total investment performance on our assets of more than 3% – enabling us to support customers through the uncertain times ahead.”