Lloyd’s of London suffers 30% drop in profit

World’s largest insurance market hurt by continued pressure on pricing and lowest investment returns since 2001

Lloyd's of London reported a 30 per cent drop in full-year profit as the world's largest insurance market was hurt by continued pressure on pricing and the lowest investment returns since at least 2001.

Earnings declined to £2.1 billion (€2.65 billion) for 2015 as income from investments, primarily in fixed income, sank 60 per cent to £400 million pounds with the majority earned in the first half of the year, according to the company’s annual report yesterday. Weaker insurance pricing in 2015 is expected to continue this year, hurting profitability.

"We've taken a double hit from reduced margins in underwriting and lower investment yield," chief executive Inga Beale said in an interview yesterday. "On the investment side we saw a dramatic reduction in 2015 that was a massive hit" to earnings.

She said the low interest-rate environment and a “healthy” return on capital of 9.1 per cent continued to attract new money into the industry, placing further pressure on insurance rates that have already seen double-digit declines.

Natural disasters

Pricing is falling at a time when natural disasters are on the rise, circumstances that would previously have sent rates up, she said. “We’re not actually sure if the old-fashioned way of doing business is going to happen again,” Ms Beale said in a separate interview.

“Now people are saying there is so much capital swilling around that one shock event wouldn’t have an immediate effect. It doesn’t seem to tally.”

Ms Beale's comments echo those of Aon's Greg Case, who said that it would take "multiple Hurricane Katrinas," which cost the industry $41.1 billion (€36.7 billion), to absorb the excess capital that's available to underwrite risk.

Lloyd’s so-called combined ratio rose to 90 per cent from 88.4 per cent amid higher claims in the energy sector and the explosion at Tianjin Port in China.

Less appealing

Separately, Lloyd’s chairman

John Nelson

said the specialist insurance market would be less appealing to investors outside Britain if the country voted to leave the EU.

– (Bloomberg/Reuters)