Lloyd’s of London reports ‘superb’ first half but warns of digitisation delays

Lloyd’s of London, the storied insurance market and one of the world’s largest providers of reinsurance, has reported a jump in profit today but warned its landmark digitisation project was taking “longer than expected”.

Lloyd’s reported an overall profit before tax of £4.9bn in the first half of 2024, up from the figure of £3.9bn reported in the same period of 2023.

Gross written premiums, the total amount customers pay for coverage, rose to £30.6bn, up from £29.3bn in 2023.

Lloyd’s chief, John Neal said: “The first half of 2024 has presented a superb set of results for the Lloyd’s market which represents a combination of disciplined underwriting, smart organic growth and real strength in the Lloyd’s balance sheet.”

“This is good news for both investors in the Lloyd’s insurance marketplace and our customers as we continue to support them in an increasingly risky world,” Neal added.

The market reported a combined ratio of 83.7 per cent —a measure of insurance industry profitability based on the ratio of net incurred claims plus net operating expenses to net earned premiums—down from 85.2 per cent. A combined ratio of 100 per cent or below signals underwriting profitability.

For 2023, Lloyd’s reported an underwriting profit of £3.1bn, up £0.5bn. Higher interest rates on the group’s investment portfolio helped it to an investment return of £2.1bn, up from £1.8bn.

Lloyd’s recorded a market-wide solvency ratio of 206 per cent, down slightly from the 207 per cent reported at the end of 2023.

Lloyd’s of London has ‘worked hard’ to get here 

Bruce Carnegie-Brown, Chairman of Lloyd’s told City A.M. “We’ve worked quite hard to get to this position, and the challenge is to maintain that and keep this sustainable.”

Lloyd’s has benefited from the so-called ‘hard’ insurance market in recent years, as insurers have hiked prices and tightened underwriting standards to offset higher losses inflation-driven claims growth. 

However, price rises have started to recede. Only 1.5 per cent of the market’s premium growth came from price in the first half.

“Prices are flatting out in the market,” Carnegie-Brown said, but volume is still growing. Volume grew five per cent in the first half.

“That’s good for Lloyd’s, and it’s good for the City,” he added.

The chairman of Lloyd’s also admitted the market had been “lucky” in the first half as there had been a lack of major catastrophes, although he admitted that historically, the second half of the year had been the toughest period for the industry. 

Last year saw a record number of billion-dollar insured losses from extreme weather, with over 37 events recording losses of more than $1bn.

Recently, Verisk, a risk modelling firm, said insurers should be “prepared to experience total annual insured losses from natural catastrophes of $151bn on average, and well more than that in large loss years.”

“We have seen above-average losses in natural catastrophes year after year. The cost has risen from around $50bn to $60bn a year in the middle of the last decade, to more than $100bn annually,” Carnegie-Brown told City A.M.

Lloyd’s has been working to “create a strong balance sheet that can resist these kinds of shocks.”

But the insurance market cannot foot the bill for these disasters itself, he added.

“We try to work with governments to try and get them to invest in resilience,” Carnegie-Brown said. “Some of this is about behaviours and being smart about behaviours,” he added. 

“It’s not just about large natural catastrophes. If you look at the range of risks out there, political, war, cyber, financial risks…when you look at the spectrum of risks, the risks are only growing. We need to work with customers and clients. Cyber and pandemic risks are just too big,” the chairman of Lloyd’s said. 

Progress on Blueprint Two

Lloyd’s has been criticised for its complex structure and high cost of doing business in the past. The market has laid out ambitious plans to reduce costs and improve efficiency with its Blueprint Two strategy, designed “to deliver profound change in the Lloyd’s market through digitalisation.”

However, the market has delayed the implementation of the next stage of the project, which was due to kick off in the second half of 2024.

“We’ve had to move more slowly than we would like,” Carnegie-Brown said. The next phase now looks set to roll out in the first half of next year as “testing has taken longer than expected.”

“This is an extraordinarily complex project because there are so many people involved and so many points of connectivity,” he added, but the market’s still committed to change. 

“Error rates [in the market] are very high. There’s lots of rework in the system between brokers and syndicates. Digital will help that, as it’ll take less time and fewer people, and you can book premiums earlier,” Carnegie-Brown summarised.