Lloyd’s of London expecting to pay out £5bn in claims, despite reporting stronger solvency position

Lloyd’s of London expects to pay out up to £5bn in Covid-19 customer claims on a gross basis, with £2bn of this figure being reinsured.

It announced a loss of £0.4bn pre-tax for the first six months of 2020, compared to £2.3bn in 2019, according to Lloyd’s half year results 2020 which were published this morning.

But its ”strong capital and solvency position” enables Lloyd’s to withstand the ongoing impacts of the pandemic, it said.

During the first six months of 2020, its Covid-19 claims post-reinsurance recoveries was £2.4bn, this contributed to 18.7% of the markets combined ratio 110.4% (June 2019: 98.8%) which equated to an overall market loss of £0.4bn.

Excluding Covid-19 claims the market delivered an underwriting profit of £1.0bn, demonstrating a significant improvement in Lloyd’s underlying performance, it said.

Ex-Covid, the market’s combined ratio showed substantial improvement at 91.7%, down from 98.8% in H1 last year.

Supporting this was a 7.1% percentage improvement in the attritional loss ratio which dropped to £52.6%.

John Neal, Lloyd’s chief executive said: “The first half of 2020 has been an exceptionally challenging period for our people, our customers, and for economies around the world. The pandemic has inflicted catastrophic societal and economic damage calling for unparalleled measures to stifle the spread of the virus, and to get businesses and economies back on their feet.

“Our half year results demonstrate that our robust approach to performance management and re-mediation has begun to take effect, evidenced by a significant turnaround in the underlying performance metrics, which give the truest indication of our market’s profitability.”

It follows Lloyd’s underwriting room reopening this month. 

Strong solvency position

During the first six months of this year the market’s net resources increased by 7.2% to £32.8bn as of 30 June 2020 (2019: £30.6bn), this it said reinforced the strength of Lloyd’s balance sheet and a central solvency ratio of 250% (December 2019: 238%), which is expected to be at 200% for H2 2020.

The H1 2020 expense ratio decreased but only marginally from 38.1% to 37.7%, with the Future at Lloyd’s programme being central to tackling total acquisition costs and administration expenses.

Meanwhile, gross written premiums were £20bn which was a 1.7% increase during the same period in 2019 (19.7bn).

For foreign exchange rate movements, the overall premium increased by just 0.1%.

But positive rate momentum accelerated in the first six months of 2020, with the market achieving average risk adjusted rate increases on renewal business of 8.7%.

This figure was offset by a decrease of 8.6% in business volumes across the market, it said this was reflective of the market’s focus on the quality of the business it renews and underwrites.

Read more…London market sectors swerve direct Covid claims due to lack of non-damage BI extensions 

Not subscribed? Become a subscriber and access our premium content