Lloyd’s Falls to 2019 Underwriting Loss, COVID-19 Drives Down Solvency Ratio

Source: Reinsurance News | Published on March 26, 2020

Lloyd's underwriting profit

The specialist Lloyd’s of London insurance and reinsurance marketplace has reported an unprofitable underwriting performance for 2019, with its full year results also revealing a decline in its central solvency ratio as a result of financial market volatility driven by the COVID-19 outbreak.

Albeit improved on the previous year, Lloyd’s has reported a combined ratio of 102.1% for 2019, compared with 104.5% a year earlier.

Despite underwriting remaining in unprofitable territory, the market did return to profit in the year on the back of a strong investment result, recording an annual return of 4.8% in 2019 versus 0.7% a year earlier.

Lloyd’s notes that its investment performance, alongside sustained rate improvements and growing underwriting discipline, helped it record pre-tax profit of £2.5 billion in the year, which is a significant improvement on the £1 billion loss posted in 2018.

Gross written premiums for the year reached £35.9 billion, which represents slight growth on the £35.5 billion posted a year earlier. Gross claims paid also increased year-on-year, from £19.7 billion in 2018 to £23 billion in 2019. At £30.6 billion, Lloyd’s net resources increased on the £28.2 billion reported in 2018.

While the overall result marks an improvement on the previous year, in spite of underwriting remaining unprofitable, a look at the market’s solvency ratio from the end of 2019 to March 19th, 2020 reveals a significant decline since the start of the COVID-19 pandemic.

Lloyd’s notes its exceptionally strong balance sheet, highlighting a central solvency ratio of 238% as at the end of 2019, compared with 249% as at the end of 2018.

However, the ongoing coronavirus outbreak is clearly having an impact on the marketplace, with Lloyd’s revealing that as at March 19th, 2020 its central solvency and coverage ratio has fallen to 205%, which is a significant decline. Lloyd’s notes in its results announcement that the decline in its solvency ratio is a result of a “high degree of turbulence in the financial markets over recent weeks”.

The global coronavirus pandemic shows little signs of abating anytime soon, with numerous countries in all corners of the world on lockdown in an effort to stop the spread and ultimately save lives. With this in mind, it could well be the case that the Lloyd’s central solvency ratio has dropped even further from the 205% recorded at March 19th.

The Chief Executive Officer (CEO) of Lloyd’s, John Neal, commented: “Whilst we are pleased to be announcing Lloyd’s return to profitability in 2019 and continued progress across our priorities, our primary focus right now is on supporting our customers and business partners in their time of need. I am confident in Lloyd’s ability to meet the challenges before it, and in doing so demonstrate the market’s unrivalled ability to support people, businesses and countries around the world in response to the far-reaching impacts of COVID-19.

“As we focus on supporting our business partners and customers during this time, it has also never been more important to accelerate progress on our ambition to create the most advanced insurance marketplace through the Future at Lloyd’s. We have sharpened our focus for 2020, prioritising initiatives that will ensure around 80% of Lloyd’s business is digitally supported, together with fast- tracking claims processing improvements and building the foundational data and technology infrastructure to support Lloyd’s future ecosystem.”

Bruce Carnegie-Brown, Chairman of Lloyd’s, added: “The beginning of 2020 has proved exceptionally difficult as COVID-19 spreads rapidly around the world with devastating consequences for families, communities and the global economy. Now more than ever, our customers need us to be ready to support them through these challenging times.

“At Lloyd’s, we are laying the foundations to do this more effectively. By focusing on performance management, modernising the market and creating a market culture that will attract the best and brightest talent, we are making the market more resilient, more successful and better placed to meet our customers’ needs.”