Neal flags emerging risks as Lloyd’s underlines Ukraine impact

Lloyd’s CEO John Neal has highlighted the impact and importance of several key emerging risks to the market as it posted a near £2 billion first half loss for 2022.

“The first six months of 2022 saw the uncertain environment of the last few years extended and expanded, reaching new spheres, and exacerbated by new events,” he said.

“With society still responding to the impacts of COVID-19, the conflict in Ukraine and the materialising effects of climate change, economic headwinds have proliferated and pose significant challenges to governments, businesses, and individuals.”

“The most salient has been high inflation, prompting a cost-of-living crisis for households, a cost-of-materials crisis for businesses, and a monetary policy conundrum for central banks around the world. In tandem, growth rates have stagnated and interest rates have soared.”

His comments come as Lloyd’s posted a £1.8 billion loss for the period in 2022 (H1 2021: £1.4 billion profit), with the result mainly driven by a £3.1 billion first half investment loss, representing a negative investment return of 3.6% (H1 2021: £628 million profit, positive return of 0.8%). 

Lloyd’s said that financial markets endured a very difficult first half of the year as equity markets fell sharply, and that bond yields increased as a result of markets expecting higher inflation, which had a resulting impact on bond portfolio valuations:

“As a result, the majority of the net investment loss is driven by valuation losses on fixed income securities which approximate to negative return of 4.4%. Given the short duration of the market’s portfolio these losses will reverse in subsequent period as the instruments approach their maturities.”

The market also confirmed that it has reserved £1.1 billion net of reinsurance for policyholders impacted by the conflict in Ukraine.

On the underwriting side, however, there was more positive news from it delivered a profit of some £1.2 billion (HY 2021: £0.96 billion) and a combined ratio of 91.4% (HY 2021: 92.2%), the best underwriting performance since 2015. 

Lloyd’s added that the underlying combined ratio has benefitted from the reduction in the attritional loss ratio which stands at 48.9%, representing a 1.6 percentage point reduction from the ratio reported for the first six months of 2021 and is consistent with that reported for the 2021 financial year. 

It said that the improvement in the attritional loss ratio is the result of the continued focus on driving sustainable profitable performance and the benefit of the favourable pricing environment. There has also been a small improvement in the market’s expense ratio which has reduced to 35.4% from 35.8% for the first six months of 2022, driven by a lower acquisition cost ratio. 

Gross written premiums increased 17.4% when compared to the first six months of 2021, however excluding the impact of foreign exchange – mainly US dollar strengthening against Sterling – premium growth stands at 12.4%. 

Lloyd’s said that the market has seen a period of sustained price increases, with the nineteenth consecutive quarter of positive pricing being reported in the second quarter of 2022. 

Price increases of 7.7% were reported in the first six months of 2022 across all major lines of business and geographies. In addition, Lloyd’s noted, there was a net 4.7% increase in business volumes period on period, after allowing for some volume growth where syndicates have demonstrated their ability to write business which contributes to sustainable profitable growth. 

Lloyd’s said that financial markets endured a very difficult first half of the year as equity markets fell sharply, and that bond yields increased as a result of markets expecting higher inflation, which had a resulting impact on bond portfolio valuations

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