Lloyd’s of London predicts Ukraine war will represent ‘major claim’

Lloyd’s of London, the city’s specialist market for insurance and reinsurance, has warned that the war in Ukraine will represent a “major claim” this year, as it posted annual results showing a swing back to profit in 2021.

John Neal, the institution’s chief executive, told the Financial Times that it expected “multibillion-dollar losses” from the conflict, but stressed that it was still very early days and the final bill could take years to establish.

“We are used to dealing with these types of losses and accepting them,” said Neal. He did not expect the market’s gross claims from the conflict to reach double-digit billions, though, and referred to some of the external predictions for exposure as “too magnificent”.

“I don’t think there is any suggestion, from the analysis that we do, that we are into losses of that scale,” he added.

Lloyd’s highlighted aviation, marine, credit and political risk insurance as areas that would attract claims. It has set up an executive group that meets daily to monitor the situation and respond to sanctions and other government actions. Neal said he believed credit insurance policies, which cover non-payment by borrowers in everything from trade credit to bank finance, were likely to be the biggest source of claims.

Announcing its results, Lloyd’s said it was “in close dialogue with market partners” to get a sense of the likely level of losses. But it added that direct and indirect claims relating to the conflict were “expected to fall within manageable tolerances and will not create solvency challenges”.

Earlier this month, a person familiar with the details told the Financial Times that Lloyd’s was expecting a significant but manageable overall loss net of reinsurance of between $ 1bn and $ 4bn.

The group made an aggregate £ 2.3bn pre-tax profit last year, with higher premiums and much-reduced losses from the pandemic outweighing a costly year for natural catastrophes.

This compares with a £ 900mn loss in 2020, when Lloyd’s was hit with billions of pounds of pandemic-related claims including business interruption and event cancellation.

The market’s combined ratio for the year – claims and expenses as a proportion of premiums – came in at a profitable 93.5 per cent, after the lossmaking 110.3 per cent in 2020.

Lloyd’s puts its turnround down to a “keen focus on underwriting profitability” and rising premiums, which have gone up for 16 consecutive quarters and by almost 11 per cent during 2021.

Its overall capital levels also increased over the period. Its central solvency ratio of capital as a proportion of its regulatory requirement rose from 209 per cent in 2020 to 388 per cent at the end of 2021.

The Ukraine war comes as Lloyd’s is under pressure in several areas. Conduct in the market is back in the spotlight after an underwriting firm was hit with a record fine last week for behavior that included harassment and bullying.

Lloyd’s is also striving to attract brokers and underwriters back to its underwriting room. Numbers have now reached about half of pre-pandemic levels.

Meanwhile, negotiations continue with owners Ping An on the future of the market’s 1 Lime St headquarters. Neal said he expected later this year to know whether Lloyd’s would stay there beyond the lease expiry in 2031, or whether it needed to find another home in the City.

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