Lloyd's COVID-19 losses of £2.5bn to £3.5bn 'entirely manageable': report

Lloyd’s of London COVID-19 losses are "entirely manageable" in light of the recovery of the investment markets and taking into account the benefit of 2019 profits and the unencumbered nature of Lloyd’s Central Fund, according to Syndicate Research.

SRL expects Lloyd's to only record a small loss for 2020 based on an average run of major losses and investment markets remaining at current levels.

However, it noted that the losses could be significant for certain underperforming syndicates and their potential recapitalisation by existing capital providers.

The Lloyd’s Market’s estimated pre-tax underwriting losses from COVID-19 of £2.5 billion to £3.5 billion, equivalent to 9.7 to 13.6 percent of 2019 Net Premium Earned (NPE), compare with the previously reported Lloyd’s 2019 combined ratio of 102 percent including major losses of 7 percent NPE.

SRL stated that it considered previous historical loss comparisons for the Lloyd’s market’s COVID-19 losses with losses sustained in 2001 to have only "limited validity", with the impact likely to be materially less, Lloyd’s having recorded a 140 percent combined ratio in 2001.

It stressed that the more "appropriate comparison is considered to be with 2017", in terms of the potential combined ratio, the losses coming immediately after a profitable year, and the potential for investment returns to materially offset the underwriting loss.

"COVID-19 represents a material loss in the first half of 2020, prior to potential additional catastrophe losses during the main Hurricane season," said SRL. "The impact of the pandemic and its perceived potential impact is already being seen in many classes. However, SRL considers that, following the recovery of the investment markets, it is likely that the position has become somewhat more nuanced since Lloyd’s stated in May that market conditions would move from a hardening to a hard market, with the potential for the market hardening to be more gradual than originally anticipated, despite it being a large impetus to the hardening market.