Lloyd’s H1 profit dips 9.9% as investment return plummets

Lloyd’s made a profit of £1.38bn in the first half of 2013, down 9.9% on the £1.53bn it made in last year’s first half.

The drop was mainly caused by a 60% decline in investment returns to £247m (H1 2012: £619m) as rising yields on new bonds cut the values of Lloyd’s insurers’ investment portfolios.

However, the market’s underwriting performance improved. The combined operating ratio (COR) dropped 1.8 percentage points to 86.9% (H1 2012: 88.7%).

This was caused by a low level of natural catastrophes as well as reserve releases, which shaved 8.1 points from the COR.

Another positive sign was a 4.9% increase in gross written premium to £15.5bn (H1 2012: £14.8bn). The increase was driven in part by exchange rate movements but also by rate increases on property direct and facultative reinsurance business as well as “modest” growth in new business.

Lloyd’s chairman John Nelson said: “In spite of the difficult economic conditions, it is pleasing to see the Lloyd’s market grew by almost 5% in the first half of the year. It shows that disciplined underwriting can co-exist with growth which is vital as we seek to capitalise on the opportunities presented by the Asian and Latin American economies in particular.”

Outgoing Lloyd’s chief executive Richard Ward added: “The Lloyd’s market is in robust financial health, supported by its strongest ever financial ratings. I am pleased that when I step down as Lloyd’s CEO at the end of the year, I will be leaving the market in an excellent position to pursue its vision to be the global centre for specialist insurance and reinsurance.”

Despite the upbeat comments, Nelson warned that much could change in the second half of the year.

He said: “The timing of catastrophe claims tends to be weighted to the second half and this, combined with the volatility of our business, means that we cannot predict how the full year-end result may turn out.”