Lloyd’s primary insurance lines in 2022: results & commentary

Primary insurance lines at  Lloyd’s increased gross written premium by 26.0% to £31.3 billion in 2022, segment results of the market’s annual report indicated. An underwriting profit of £1.51 billion was up 86% year on year.

Following are highlights from the Lloyd's segment report on primary insurance lines, including management commentary.

Property - GWP of £12.05 billion was up 25.6% y/y. Combined ratio of 93.3%, down 1.5 percentage points (pps) y/y, included 6.8 pps of favourable PYD. Underwriting profit of £538 million compared to £336 million profit in the prior year.

Highlights: The catastrophe loss ratio remains under pressure while portfolio remediation work continues to drive improvement on the attritional loss ratio. The market continues to see some de-risking of cat exposures in certain areas and refinement of risk appetites where performance has lagged. For the political risk and terrorism segments of the property portfolio, 2022 was negatively impacted by the conflict in Ukraine. This put pressure on pricing, aggregation, distribution and reinsurance protection for some market participants. Losses in the contingency line of business, due to the impact of COVID-19, have stabilised.

Outlook: Positive pricing momentum is expected to continue through 2023, driven primarily through hardening reinsurance market costs, particularly where critical catastrophe or political violence exposures exist. Aggregate appetite for catastrophe exposures will remain a key challenge in 2023. Challenges are also envisaged for the political violence and terrorism segment, as market participants recalibrate risk appetites. Binder class business requires continued focus through 2023.

Casualty - GWP of £13.00 billion was up 25.4% y/y. Combined ratio of 93.7%, down 6.6 pps y/y, included 2.0 pps of unfavourable PYD. Underwriting profit of £536b million compared to £17 million loss in the prior year.

Highlights: Positive price momentum slowed following multiple years of significant price increases across almost all lines of business, particularly cyber. The market started to soften while capacity remained stable overall. There has been a pronounced shift away from certain lines, exposures and occupations. Cyber maintained positive pricing momentum though not to levels seen in recent years. D&O liability has experienced market softening resulting in significant downwards pressure on pricing. Reserve strengthening has been observed over a number of casualty lines

Outlook: A focus on social and economic inflation as well as the impact of recession on all lines continues to grow. Slowing price increases will need to be monitored in light of these broader macro-economic trends. Given the above, there is a continued elevated level of oversight by Lloyd’s and additional work being done by the market to monitor the robustness of reserves for this line during this period of heightened uncertainty.

Marine, Aviation and Transport - GWP of £3.85 billion was up 32.4% y/y. Combined ratio of 90.3%, up 8.3 pps y/y, included 11.4 pps of favourable PYD. Underwriting profit of £280 million compared to £388 million profit in the prior year.

Highlights: Positive price momentum continues. The Russian invasion of Ukraine led to sharp pricing increases, particularly in aviation war and specific marine war breach calls. For classes of business unaffected by the conflict, rate increases remained positive but showed signs of slowing. Marine liability saw significant price increases. Cargo continues to deliver excellent results following years of positive price momentum and improved terms and conditions. Marine war portfolios are currently holding reserves in the 2022 year of account for potential losses from blocking and trapping in the Black Sea.

Outlook: Considerable uncertainty remains on claims arising from the war. There has been a sharp contraction in the amount of available reinsurance capacity for the affected sub-classes, meaning that market participants are having to be far more cognisant of aggregation and accumulation. Marine liabilities, following a relatively benign year in 2022, are beginning to achieve rate increases whereas other areas in marine are largely flat. This follows several years of positive rate change and major improvements and consistency in results.

Energy - GWP of £1.51 billion was up 19.3% y/y. Combined ratio of 90.1%, down 1.4 pps y/y, included 6.5 pps of favourable PYD. Underwriting profit of £97 million compared to £71 million profit in the prior year.

Highlights: Energy endured a challenging year in 2022 due to the Russian invasion of Ukraine and subsequent sanctions. While this impacted premium levels for many Lloyd’s syndicates, the subsequent energy security concerns led to a significant uptick in production elsewhere. The pricing environment across property and casualty lines for energy stayed relatively stable. A number of midstream and downstream gas, LNG, pipeline and refinery loss activity in the second half of year materially impacted profitability.

Outlook: Midstream loss activity in H2 2022 and the changing specialty reinsurance market has pushed all energy product lines to now anticipate another year of gains. Some insurers will be prepared to take an increased net exposure to offset increased reinsurance costs, but exposures must be carefully managed given the high values and large limits. 2022 saw a substantial increase in opportunities to write renewable energy exposures and this is anticipated once again for 2023.

Motor - GWP of £895 million was up 25.5% y/y. Combined ratio of 96.7%, up 15.6 pps y/y, included 0.3 pps of unfavourable PYD. Underwriting profit of £67 million compared to £336 million profit in the prior year.

Highlights: Positive trends continued with more price strengthening during 2022, though not to the same level as 2021. There has also been a focus on increased deductibles and tightening of terms and conditions. In the UK, the pricing levels achieved during 2022 are under pressure from competitors, with a continued focus on performance management and remediation by Lloyd’s.

Outlook: Uncertainty remains as to whether current pricing levels are sufficient and whether enough consideration has been given to further development of longer tail risks, especially given the inflationary environment.

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