Lloyd’s reports 2018 loss of £1.0bn amid poor underwriting performance

Lloyd’s reported an aggregated market loss of $1.3bn (£1.0bn) for 2018, narrowing from a £2.0bn deficit a year earlier but still reflecting weak underwriting performance. The result came alongside higher gross written premiums and an improved but still loss-making combined ratio, with management describing the outcome as below the standard expected of the market.

The 2018 figures, set out in Lloyd’s Annual Report, showed gross written premiums of $47.6bn (£35.5bn), up from £33.6bn in 2017. The increase in premium volume occurred despite the market remaining in an overall loss position, indicating that top-line growth did not translate into adequate underwriting profitability.

Lloyd’s reported a combined ratio of 104.5% for 2018, an improvement from 114.0% in 2017 but still above the break-even level of 100%. The better ratio reduced the scale of the market loss compared with the prior year, but the result confirmed that claims and expenses continued to exceed earned premiums.

Net incurred claims were $22.0bn (£16.4bn) in 2018, down from £18.3bn in 2017 in sterling terms. Lloyd’s said performance was driven by natural catastrophe and attritional losses following another costly year for major events.

On a gross basis, the market paid $26.4bn (£19.7bn) in natural catastrophe claims in 2018, before the impact of reinsurance.

Investment performance provided only limited offset to underwriting losses, with Lloyd’s reporting an investment return of $675m (£504m), equivalent to 0.7% in 2018. This compared with an investment return of £1.8bn, or 2.7%, in 2017, reducing the contribution from the asset portfolio to the market’s overall result.

Return on capital (annualised) was negative 3.7% for 2018, improving from negative 7.3% in 2017 but remaining below zero. The negative return reflected the combination of underwriting losses and lower investment income, despite the year-on-year improvement in both the combined ratio and overall loss.

Lloyd’s Chief Executive John Neal said the 2018 performance was not of the standard expected of a market with Lloyd’s heritage and quality. He added that the outcome followed another costly year for natural catastrophes, which, alongside attritional losses, weighed on the market’s underwriting result.

Neal said Lloyd’s had implemented stronger performance management measures, which would remain an enduring feature of the market’s oversight framework. He stated that these actions were expected to deliver progressive performance improvement across the market beginning in 2019.

The timing of further reported changes beyond these performance management measures was not specified in the 2018 disclosures.