The Lloyd’s market made a profit of £588m in the six months to the end of June 2018. The combined ratio (net incurred claims and operating expenses expressed as a proportion of net earned premiums) was 95.5%.

Headline figures are as follows:

 

 

6 months to 30.6.2018

6 months to 30.6.17

12months to 31.12.17

Gross written premium

£19,338m

£18,881m

£33,591m

Net earned premium

£11,986m

£11,981m

£24,498m

Net combined ratio

95.5%

96.9%

114.0%

Profit/(Loss) before tax

£588m

£1,216m

(£2,001m)

Return on capital

4.3%

8.9%

(7.3%)

 

Although there was an improvement in the underwriting performance over the first half of 2017, the overall profit was smaller given the lower investment income of £0.2 billion (0.3% on assets), down from £1.0 billion (1.5%) in the same period last year.

Premium growth has been generated by property insurance (most notably, under binding authorities in the USA), property reinsurance (with agriculture and catastrophe excess of loss contributing significantly), casualty (particularly in cyber) and specialty lines (notably political risks). Although market conditions remain competitive, Lloyd’s estimates that risk adjusted rate improvements averaged 3.1% on renewal business in the first half year. Releases from claims’ provisions for prior years totalled £0.5 billion; reducing the overall combined ratio by 3.8% (compared to £0.2 billion in the first half of 2017, improving the combined ratio by 1.6%).

The first six months have been benign in terms of catastrophic loss activity, major claims adding just 0.6 percentage points to the combined ratio, compared with 1.9 percentage points in the first half of 2017. The figures for 2018 do not include recent losses including Hurricane Florence, which brought heavy rain, flooding and high winds to the Carolinas and other states on the eastern seaboard of the USA, nor Typhoon Mangkhut, which tore through Hong Kong and southern parts of China. These events will be reported on in the full year accounts due early next year. The second half of 2017 was marked by a long series of natural catastrophes including hurricanes Harvey, Irma and Maria, earthquakes in Mexico and wildfires in California. 2017 was the most expensive year on record in terms of the cost of natural catastrophes losses paid by insurers.

The investment return reflects the actual and expected further increases to interest rates, causing some losses in the value of investment grade bonds. Lloyd’s syndicates’ premium trust funds are largely invested in short dated, high quality government and corporate bonds. Although increases in interest rates are broadly a good thing, as they increase investment returns over time, the short term impact can be negative as rising interest rates reduces the value of a bond. The bulk of syndicate funds are now held by the 2016 year of account (following the payment of the reinsurance to close premium from the 2015 account at the end of 2017). Developments in the second half of the year will influence the investment contribution to the overall result of the 2016 account prior to its closure at 31 December 2018. The next set of syndicate forecasts for the 2016 and 2017 accounts are due on 14 November 2018, based on data as at 30 September.

Complete Lloyd’s results can be found here, the analysts’ presentation slides here and an update on Lloyd’s strategy (include some detail on Lloyd’s subsidiary, Lloyd’s Brussels) can be found here.