Lloyd’s reports £2.6bn reinsurance recoveries against £6.2bn gross COVID loss

The Lloyd’s of London insurance and reinsurance market reported a £0.9bn loss for 2020 after significant impacts from the COVID-19 pandemic dented performance, despite significant reinsurance recoveries.

In total, Lloyd’s reported an aggregated market loss of £0.9bn for 2020, down from a £2.5bn profit for 2019.

Driving performance down was, of course, the COVID-19 pandemic, which causes £6.2 billion of gross losses during the year.

Reinsurance markets played a significant role in supporting Lloyd’s syndicates and underwriters in relative to COVID, as recoveries of £2.6 billion were reported, dropping the net pandemic loss for the Lloyd’s market to £3.4 billion.

John Neal, Lloyd’s CEO, commented on the results, “Following an extremely challenging year marked by a global health crisis of a scale never seen before, Lloyd’s continued to support its customers with pay outs expected to total £6.2bn in COVID19 claims. The year was also marked by a high frequency of natural catastrophe claims and the UK’s formal exit from the EU, driving further losses and uncertainty.

“Against this unprecedented backdrop we have made good progress across our performance, digitalisation, and culture transformation plans. Our disciplined underwriting approach and determination to become the world’s most advanced insurance marketplace have set us up for real success this year alongside the continued positive rate momentum that will see the market supporting growth for the first time in four years.”

During 2020, Lloyd’s reports premium rate increases of 10.8% and sees this positive rate momentum as continuing through the first quarter of 2021.

The marketplace has held onto its strong capital and solvency positions through the COVID impacts of 2020, with net resources rising during the year to £33.9bn and central and market wide solvency ratios of 209% and 147% respectively.

Positively, underlying underwriting has improved across the Lloyd’s insurance and reinsurance market, with the combined ratio for 2020 coming out at 97%, excluding COVID impacts.

That led to an underwriting result of £1.9 billion being reported.

But if you include COVID-19 losses, Lloyd’s combined ratio rises to 110.3%, the highest since 2017.

“While Lloyd’s has reported an aggregated loss of £0.9bn, this was driven by incurred COVID- 19 losses of £3.4bn, adding 13.3% to the market’s combined operating ratio of 110.3%. Alongside COVID-19, the busy natural catastrophe season amounted to an additional £2.5bn of major claims. Despite those challenges, the market’s combined ratio has shown substantial improvement over the past three years, dropping to 97.0% in 2020, excluding COVID-19 claims. This represents a 5.1 percentage point improvement on 2019 (102.1%) and a 7.5 percentage point improvement on 2018 (104.5%). We are further encouraged by a 5.4 percentage point improvement in the attritional loss ratio when compared with 2019, which has dropped to 51.9%,” CEO Neal explained.

Gross premiums written by the Lloyd’s market in 2020 were down slightly on the prior year, at £35.5bn down from £35.9bn.

The attritional loss ratio, which has been an area of some concern in Lloyd’s results in recent years, fell to 51.9% in 2020, down from 57.3% in 2019.

Excluding the impacts of COVID-19 pandemic losses, Lloyd’s underlying underwriting profit was £0.8bn which the market says shows “a significant improvement in Lloyd’s underlying performance” and is significantly better than 2019’s underwriting loss of £538m.

On the rate environment in insurance and reinsurance, Lloyd’s explained that “exceptional market conditions driven by an acceleration in positive rate momentum throughout 2020” resulted in an average risk adjusted rate increase on renewal business of 10.8% in 2020.

At the same time, Lloyd’s focus on culling business that hasn’t performed continues and volumes reduced by 12% in terms of gross written premiums, as underperforming business was remediated.