Lloyd’s of London has reported a whopping £2.5bn ($2.9bn) in pre-tax profits in 2019 thanks mostly to a massive windfall investment return.
But dig behind the headlines and Lloyd’s figures show its syndicates are still struggling to earn an underwriting profit, with the marine market continuing to be one of its worst performers.
'Encouraging' result
Lloyd’s chief executive John Neal described the overall 2019 profit as “encouraging progress” supported by “improving underwriting discipline”.
The figure is well up on the $1bn pre-tax loss Lloyd’s reported in 2018.
As a result of the profits, financial security at Lloyd’s improved, with its net financial resources rising to a whopping £30.6bn.
However, the 2019 profits are mostly down to Lloyd’s investment returns, which soared to £3.5bn compared to just £500m in the previous year.
In pure underwriting terms, the Lloyd’s market ran at a combined ratio of 102%, indicating that claims costs and expenses are still in excess of premium income.
And, in terms of underwriting losses, the marine lines continue to be one of the worst offenders.
Lloyd’s has not released segment figures for marine but included it in the returns for the marine, aviation and transport sector.
Marine, aviation and transport recorded a net loss of £199m in 2019, but its combined ratio of 108% was the worst of all the Lloyd’s business lines.
Premiums slump
Gross written premium had also declined 11% on the previous year to £2.8bn.
Lloyd’s said in its review that gross premium is falling in marine because many syndicates have quit the sector in response to the profit drive by Lloyd’s management. However, the group said less capacity in the marine market is leading to improved pricing.
“A number of syndicates elected to withdraw either partially or fully from certain marine lines, explaining the written premium decrease for the year,” Lloyd’s said. “The above implied an improved pricing and underwriting performance environment that gathered momentum throughout 2019.”
However, some sectors of the marine market are performing better than others, with cargo and war risk in particular seeing stronger rates. Lloyd's said hull and machinery underwriters are still struggling despite higher rates.
“Cargo showed the clearest evidence of positive market remediation and stabilisation," Lloyd’s said. "Hull, however, remains under significant strain despite an improving performance environment.
Rising tensions
“The recent increase in tensions within the Middle East has impacted war written premiums and this will continue into early 2020.”
Lloyd’s management is optimistic over the marine sectors performance this year. The marketplace predicts the next strategy of underwriters to improve returns will be on risk selection rather than reducing capacity, and it encouraged them to continue to push the market up.
“During 2020, it is expected that the marine market will be highly selective, both on individual risk and also at segment level, with the preference for more open market placements enabling greater opportunity to control risk selection,” Lloyd’s management said.
The recent increase in tensions within the Middle East has impacted war written premiums and this will continue into early 2020.
Lloyd's
Former Lloyd’s underwriter and industry veteran Jonathan Jones suggested the marine underwriters have a radical rethink on how they assess risk.
He strongly believes there should be more focus on the safety management and crewing record of ships to complete the assessment of risk.
“It’s a perfect storm, which needs a radical reappraisal of how underwriters assess risk," he said. "The solution is in analysing the quality, approach and attitude of the managers. It’s not the type of the car that is important, it’s the driver.”
Lloyd’s CEO Neal said he is determined to continue with his programme of business, cultural and technological reforms — much of which has concentrated on the beleaguered marine sector.
Neal said: “2019 and the early part of 2020 have been spent designing and planning what is a complex multi-year transformation, which will build on the collaborative efforts of the market to date to create better solutions for our customers’ needs and easier access to the market at significantly lower cost.”
