Despite a softer-than-usual catastrophe year, Lloyd's has reported a slight decline in profit in the first half of 2013 against a background of low investment yields.
Lloyd's reported 1.39 billion pounds ($2.1 billion) in income in the first six months of 2013, a 5.4 percent drop from 1.47 billion pounds ($2.4 billion) in profit last year.
“Apart from the lack of major natural catastrophe claims in the first half, the most notable feature of these results is the fall in investment income returns from 1.2 percent to 0.5 percent for the first six months of the year,” says John Nelson, Lloyd's chairman, in a statement. “This is not unique to Lloyd's. All large investors—including major insurers—have found it hard to secure meaningful returns in the continuing low interest rate environment.”
The combined ratio, however, improved from 88.7 percent as of June 2012 to 86.9 percent in the current reporting period, reduced by 8.1 percent in from its accident-year combined ratio due to prior-year reserve releases.
Catastrophes in the first half of 2013 included flooding in Australia, central Europe and Canada, and the Moore, Okla. tornado, but overall losses were minor because of the absence of an Atlantic hurricane, which Lloyd's chief executive Richard Ward says is a leading cause of loss for the market.
Gross written premium in the first half of 2013 was 15.49 billion pounds ($23.9 billion) compared to 14.76 billion pounds ($23.3 billion) last year, an increase of nearly 5 percent.
“Lloyd's remains in robust financial health and the strength of the central assets enabled the Society to repurchase some 180 million pounds of subordinated debt in May 2013,” says Ward in a company statement.
Nelson writes that two factors likely to affect Lloyd's future performance are continued depression of investment income and volume of capital—particularly from outside the industry—seeking to gain exposure in the insurance sector, which is “putting greater downward pressure on premium rates”.
He says it is essential for the Lloyd's market to focus on underwriting, profitability and performance management, as well as outreach and product development in new territories within the Asian and Latin American economies, part of what Ward calls Lloyd's “Vision 2025” strategy. Lloyd's recently applied for an onshore license in Turkey and opened a new branch in Beijing,
Ward, Lloyd's longest-serving CEO, is leaving his post in December 2013.
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