Lloyd’s of London will report a combined ratio of around 95% at the year-end of 2022, anticipating the same for 2023.
S&P Global Ratings noted that this prediction takes into account Lloyd’s combined ratio of 91.4% at half-year 2022, while also considering the reserving of £1.1 billion for the Russia-Ukraine conflict and £2.2 billion for Hurricane Ian.
Despite significant reserving, rising interest rates, and investments in private assets through its newly launched investment platform, Lloyd’s market-wide regulatory solvency ratio and central solvency ratio remained stable over 2022.
Lloyd’s holds comfortable capital surpluses in both its half-year 2022 market-wide regulatory solvency ratio of 179% (year-end 2021 177%) and central solvency ratio of 395% (year-end 2021 388%).
S&P expect both market-wide and central solvency ratios to remain robust even in extreme stress scenarios, such as catastrophic events, or if the current inflationary environment continues in 2023 and 2024.
S&P also raised its issue-level rating on Lloyd’s subordinated Tier 2 notes to ‘A-‘ from ‘BBB+’.
S&P previously applied two notches to reflect the higher payment risk due to coupon deferral compared with similar hybrids rated in the ‘A’ category.
This was due to S&P considering Lloyd’s solvency level in the past to be materially closer to the point of mandatory deferral when considering its sensitivity to severe events.
Lloyd’s significant exposure to natural catastrophe risk, the challenging macroeconomic environment due to rising inflation, and uncertainty around the Russia Ukraine war provide the potential for volatility in the level of its solvency cover.
This is offset by the stability in the solvency ratio maintained in 2022, better operating performance expectations, and ability to recapitalize when needed.
Global insurance marketplace Lloyd’s of London’s gross written premium is expected to reach £48.9 billion by the end of 2022, but expects additional revenue growth of 14.3% next year. If this is achieved, the total Lloyd’s GWP for 2023 would reach £56bn GWP.
That prediction came according to Lloyd’s of London Chief of Markets Patrick Tiernan: “These are extraordinary times and this is evidenced by the new past period of wrestling with the current pressures we are facing.”
These stresses were defined by the fourfold combination of high inflation, rising interest rate.
With over 600 market leaders attending from both the Lloyd’s and London market, it was a great way to come together to discuss our collective progress, and the support and adoption required to deliver the programme over the next two years.
The progress event opened with a keynote from John Neal, CEO of Lloyd’s, covering the initial vision for the transformation programme and the journey we have been on to get to where we are today. He talked about the overall ambition of Blueprint Two, making the Lloyd’s and London market a better, faster and cheaper place to do business. We know the work is far from over, but we’re making great strides in delivering the programme; now is a pivotal moment in our market’s transformation.
by Yana Keller