Lloyd’s 2022 annual results

Although the newspaper headlines are around the overall loss for the year, this arises from the volatility in investment markets, in particularly unrealised losses on the type of high quality assets held by the market and its syndicates that go down in value when interest rate rises. Looking beyond those headlines, these are an excellent set of results. The market is in a very strong trading position for 2023 and, for the first time in many years, a robust underwriting environment is now supported by the prospect of much improved investment returns.

For the first time, Lloyd’s gave forward guidance on the outlook for the coming year, anticipating a combined ratio* below 95%, gross premiums growing to £56 billion and investment income forecast at £2.7 billion.

The announced underwriting result is excellent particularly given the natural and manmade catastrophe losses, widespread inflation and geopolitical uncertainty so prevalent in 2022. Gross written premium increased by over 19% to more than £46bn (up from £39.2bn). The increase reflects a combination of growth from the strong dollar (8%) direct price increases (8%) and organic growth (3%).

The underwriting performance improved to deliver a combined ratio of 91.9%, despite major claims contributing 12.7 percentage points to this. Major losses in the year included those arising from the war in Ukraine and from Hurricane Ian. Lloyd’s said this is a top quartile result when compared to its global competitors and industry peers.

The attritional loss ratio (the cost of small and medium losses as a proportion of premium) has improved to 48.4% (FY 2021: 48.9%). Lloyd’s sees this as an important metric and a measure of the market’s ability to deliver sustainable profit. The target for this measure continues to be 50% or lower. Releases from prior years improved the combined ratio 3.6 percentage points. The expense ratio also improved to 34.4% from 35.5%/ There were falls in both administrative expense ratio (down 0.5 points to 11.0%) and average broker acquisition costs (down 0.6 points to 23.4%).

The full year loss of £800m is after a net investment loss of £3,128 million, equivalent to a negative return on invested assets of 3.5%. 2022 was an exceptionally turbulent year for risk assets, driven by rising interest rates as central banks took action to contain rising inflation caused by supply chain disruption, the war in Ukraine and political uncertainty. The higher interest rate environment has created opportunity for the market in 2023. The vast majority of syndicate investments are held in short duration, government and high quality corporate bonds and cash that will generate much higher returns from now on.

Syndicates have posted aggregate net reserves of £1.4 billion for losses arising from the war in Ukraine. Lloyd’s points to the stability of reserves set aside for Covid-19 claims, as evidence for the tendency to reserve conservatively and early for events of this nature. The other significant catastrophe event in the year was Hurricane Ian, which has cost the market an estimated £2.0 billion.

The full market results are available here and the presentation pack available here.

  1. * The combined ratio is a measure of an insurer’s underwriting profitability based on the ratio of net incurred claims plus net operating expenses to net earned premiums. A combined ratio of 100% is break even (before taking into account investment returns). A ratio less than 100% is an underwriting profit.