Lloyd’s claims all-clear on stressed banks for assets & underwriting

Lloyd’s has only minimal ties to the stressed elements of the US banking sector or the instruments that have been sunk in bank restructurings, leaving the group’s investment targets fully unthreatened, Lloyd’s CFO Burkhard Keese (pictured) has said.

“The current issues do not put our positive investment outlook at risk,” CFO Keese claimed. For 2023, Lloyd’s is targeting £2.7 billion in investment income, in part as the move to a higher interest rate environment creates strong reinvestment yields to contribute to total investment performance in excess of 3%.

On its investment book, Lloyd’s carries a low 4% asset exposure to non-investment grade non-government debt from the broad swathe of corporate issuers, fractional exposure to US regional banks and only trace amounts of the kind of bank debt wiped out in the Credit Suisse rescue, Keese told a briefing following publication of Lloyd’s Q4 and 2022 financial results.

Banks at large account for some £8.2 billion on the Lloyd’s investment portfolio, of which £3.5 billion can be traced to the ranks of globally systemically important banks Keese considers “unlikely to default.”

The remaining £4.6 billion is “well diversified” across a large number of institutions globally. US regional banks, in the limelight for having lost SVB from their ranks, account for £630 million in Lloyd’s assets. That sum would have been 0.6% of the £96.2 billion investment book sported end- 2022.

Alternative tier 1 debt instruments, the likes of which got wiped out by regulators when UBS swooped in to rescue Credit Suisse, is £33 million on Lloyd's books.

Nor does Lloyd’s have much exposure from underwriting. “Not too much D&O underwriting on the US banking sector,” Keese said. “Not from here.”

Lloyd’s CEO John Neal used that mention to rail against the downward pricing trends visible in D&O lines, reinforcing concerns expressed by Lloyd’s chief of markets Patrick Tiernan.

“Price reduction in D&O does not make any sense at all,” Neal said of a sector now likely to see class action investor suits at and around the recent bank downfalls. “Litigation is as likely as it ever was.”

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