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Lloyd’s has announced a pre tax loss of -£2.0bn for the 2017 calendar year (2016: +£2.1bn ). This result was made up of a combined ratio of 114.0% (2016: 97.9%), which contributed to a loss on capital of -7.3% (2016: +8.1%).

 

Premium

Gross written premium (GWP) increased by 12% to £33.6bn (2016: £29.8bn), approximately half of which is accounted for through foreign exchange movements relative to sterling (see below table).

Component Effect on GWP
Prices (premium rates) -2%
New syndicates 3%
Existing syndicates’ growth 5%
Sub total 6%
Foreign exchange 6%
Overall change 12%

Of the 5% increase from existing syndicates, approximately 2 percentage points is accounted for by the inflationary effects of GDP growth on insurable values.

 

Underwriting performance 

The 2017 calendar year combined ratio was made up of an accident year combined ratio of 116.9% (2016: 103.0%) and a prior year release of 2.9 percentage points (2016: 5.1 points).

Within the 2017 accident year combined ratio of 116.9%, major claims accounted for 18.5 percentage points (2016: 9.1 points), with the balance of business underwritten contributing 98.4 percentage points (2016: 93.9 points). These major claims were driven by the following groups of catastrophe events:

Event Net losses
Hurricanes Harvey, Irma & Maria $4.8bn
California wildfires $0.7bn
Mexican earthquakes $0.3bn
Subtotal $5.8bn
Other major losses $0.2bn
Overall total $6.0bn

For the second year in succession, none of Lloyd’s eight major classes of business generated a profitable accident year combined ratio, and only one class (Energy) managed to do so on a calendar year basis (i.e. with the benefit of prior year releases). Four classes of business (Marine, Motor, Aviation and Life) required prior year top ups.

Class of Business Accident Year Combined Ratio Prior Year Release / Top Up Calendar Year Combined Ratio
Reinsurance 121.7% 4.5% 117.2%
Property 131.5% 3.9% 127.6%
Casualty 103.7% 0.6% 103.1%
Marine 121.8% -0.6% 122.4%
Energy 107.7% 21.1% 86.6%
Motor 114.4% -7.9% 122.3%
Aviation 100.6% -1.6% 102.2%
Life 132.4% -1.4% 133.8%

 

Alpha comment: these results point to the reality that, following several years of deteriorating market conditions, underlying margins are not sufficient for the market to cover any increase in the cost of major catastrophic claims.  This inconvenient truth had been disguised in recent years by benign hurricane activity and the use of prior year releases to produce profitable calendar year underwriting results. A sustained hardening of premiums rates over the medium term will be necessary to return margins to a level able to withstand routine catastrophe losses on an accident year basis.

Please click here for a full report of Lloyd’s 2017 Annual Results.