Lloyd’s plunges to heavy loss on £3.1bn investment hit, £1.1bn Ukraine claims

Insurance and reinsurance marketplace  Lloyd’s of London plunged to a loss of £1.8 billion in the first half of the year, driven by the negative investment results of £3.1 billion due to mark-to-market losses that are likely to hit its full-year earnings, S&P analysts have warned.

Lloyd's recorded an overall loss in first-half 2022 of £1.8 billion before tax, compared with a profit of £1.4 billion for first-half 2021, due to mark-to-market losses on its bond and equity portfolios. The market reserved £1.1 billion net of reinsurance for claims related to the war in Ukraine.

However, despite the impact of natural catastrophes, the invasion of Ukraine, inflation, and other geopolitical factors, Lloyd’s managed to produce a combined ratio of 91.4% — its strongest since 2015.

Lloyd’s said it “leveraged favourable trading conditions” to achieve gross premium growth of £24 billion in H1 2022, up 17.4% on the prior year period’s £20.5 billion.

The corporations’ attritional loss ratio also improved to 48.9% from 50.5% in H1 2021, while the expense ratio showed a 0.4 percentage point improvement at 35.4% (HY 2021: 35.8%). Lloyd’s expects expenses to continue falling as it delivers sustainable performance and invests in digitalisation through its Blueprint Two programme to drive improved efficiency.

According to S&P Global Ratings, the results reflect Lloyd’s positive underwriting performance and the corrective actions that management has taken. But, warned that investment losses will likely place pressure on Lloyd's full-year earnings, although it expects the effect to “not be material” on an economic basis.

“This is because mark-to-market losses on the bond portfolio are likely to reverse as the bond portfolio reaches maturity. Furthermore, Lloyd's investment income will benefit from increasing interest rates over the coming years,” analysts explained.

Commenting on its half year performance, John Neal (pictured), CEO of Lloyd’s, said: “With political and economic uncertainty looming large over society, it’s more important than ever that insurers are ready to support. Lloyd’s results today point to both the sustainable performance of our market and the resilience of our capital position, enabling us to continue supporting customers through whatever lies ahead.

“Rising interest rates, while prompting an unrealised investment loss on paper at the half year, will be good news for insurers in the long term as returns on assets strengthen in 2023 and beyond. Meanwhile, with the conflict in Ukraine continuing to inflict devastating consequences, we’ve taken proactive steps to protect our customers from the fallout while ensuring we can support them – and continue driving sustainable performance – through the uncertain times ahead.”

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