Lloyd’s investment performance for H1 2023 rebounds
The marketplace bounces back after a difficult 2022, with strong investment performance despite macro volatility biting at its heels.
Andrew Putwainposted on Monday, September 11, 2023
Lloyd’s of London revealed its H1 2023 financial performance last week, which showed the company had a net investment return of £1.8 billion, compared to an H1 2022 loss of £3.1 billion.
In its press release, Lloyd’s said its results were “strong for the first six months of 2023”, with an underwriting profit of £2.5 billion. This compares favourably to 2022’s equivalent £1.2 billion. 2023 saw a profit before tax of £3.9 billion, compared to 2022’s loss of £1.8 billion.
“We’re pleased to be reporting a strong set of results for the year so far,” said John Neal, Lloyd’s CEO. “With profitability in both our underwriting and investments, a leading combined ratio, strong premium growth, and a bulletproof balance sheet, we can support customers through a range of shocks and scenarios.”
“Combined with the market’s progress in driving sustainable performance, these results
set us up to deliver on our positive financial outlook for 2023.”
The good results come despite recent volatility at the prestigious institution. Last year, the Lloyd’s market was revealed to have had mixed fortunes over the preceding 12 months – including in its investment returns. This information was published in a study, the “Lloyd’s of London Market Report”, which was the first annual Gallagher Re Lloyd’s report that tracked the market’s capital and profitability.
Neal added that, “combined with the market’s progress in driving sustainable performance, digitalisation, and showing leadership from climate transition to culture change, these results set us up to deliver on our positive financial outlook for 2023.”
The company reported gross written premiums of £29.3 billion and a combined ratio of 85.2%. Its investment portfolio is worth £83 billion.
Lloyd’s loss reversal for its portfolio reflected a mixed bag for H1 2023 for re/insurers in Europe, Bermuda, and North America.
For many of these organisations, fixed income investments failed to perform over the period – particularly in the US – due to a slew of issues, one being higher interest rates.
According to a report from AM Best, whilst underwriting numbers were strong, investment results for the reinsurance industry were severely impacted by unrealised losses on fixed income securities – a direct result of the rising interest rates that began in early 2022.
“Financial markets had a mixed first half of the year, with most assets starting the year positively in the first quarter, followed by more fluctuation in the second quarter,” said Lloyd’s full report on their results. “Government bond prices experienced heightened volatility over the first half of 2023. In January, prices rose after the Bank of Japan kept its yield curve control targets in place, and, in March, government bond prices rose due to the collapse of Silicon Valley Bank as investors moved to safer assets."
“Equity markets were the clear outperformers in the first six months
of the year, with the S&P 500 returning +16.9%."
”Conversely, the report added that government bond prices fell in February, May, and June due to inflation showing lower-than-expected signs of slowing down. “This resulted in some markets expecting further rate hikes (for example, the UK),” it said. “For other markets, [there was] a lower likelihood of a pause or cuts to Central Banks rates."
It also added that credit markets provided positive excess returns over government bonds due to general demand for yield as investment-grade (IG) yields topped equity earnings for the first time in decades.
“Equity markets were the clear outperformers in the first six months of the year, with the S&P 500 returning +16.9%, largely driven by large technology companies due to the excitement around artificial intelligence,” it said.
However, the fixed income market and other leading investment areas are set to have a healthier H2 this year. This could see Lloyd’s posting positive full-year results for its accounts, though some have questioned its profitability in response to Hurricane Idalia and the Lahaina wildfire in Hawaii.