Underwriting losses prompt Lloyd’s chief financial officer to take action

Lloyd’s of London reported underwriting losses in all classes in the accident year 2016, driving the management to take action to improve underwriting quality and expenses.

Without prior-year reserve releases, Lloyd’s combined ratios in all classes of business were above 100 percent. The performance was particularly bad in motor, which recorded a combined ratio of 109.3 percent in 2016, impacted by a severe reduction of the Ogden personal injury discount rate in the UK. A severe cut to the Ogden rate inflicted a substantial one-off increase in prior year reserves on UK motor re/insurers and is set to also affect the 2017 accounting year.

The marine business at Lloyd's did not perform much better than motor with a combined ratio of 108.4 percent, followed closely by aviation, property and energy. Reinsurance was among the better performing classes with a combined ratio of 102.3 percent, as well as casualty with 102.9 percent.

“We have been flagging the movement in pricing over a number of years, and that’s coming into the numbers now in terms of the current accident year performance,” said Lloyd’s chief financial officer John Parry during a March 30 annual results press conference.

The re/insurance industry is generally facing a soft market due to excess capacity. Pressure is particularly high in reinsurance property treaty, Parry noted.

Lloyd’s was saved from reporting a major profit drop in 2016 by significantly higher investment returns. Pre-tax profit remained flat in 2016 at £2.1 billion compared to the prior year. The bulk of it, £1.64 billion, came from investment returns and foreign exchange movements. The core underwriting business contributed only £468 million to the total. And this was only possible because of prior-year reserve releases.

“Those drivers are presumably not sustainable,” Parry admitted. Sterling would need to go to parity with the dollar [from a current rate of £1 to $1.25] to produce a similar effect in the results for 2017, he noted.

This news article is only a snap-shot of a longer feature on Intelligent Insurer. To find out more about what Lloyd’s is planning to improve the quality of its results, please click  here.

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