Lloyd’s Keese doubles down on call for continued discipline in US casualty, cyber and PVT

Lloyd’s CFO Burkhard Keese has hailed the market’s strong H1 performance as further proof of the Corporation’s laser focus on underwriting profitability, as he doubled down on previous calls for continued discipline in distressed lines, particularly US casualty.

Speaking to The Insurer, Keese said Lloyd’s overall portfolio is adequate with positive growth and underwriting discipline evident across almost all lines of business.

However, Keese stressed that there are lines of business where continued work is needed, with the former Allianz executive highlighting US general liability, cyber and political violence and terrorism (PVT) as areas of concern.

“The biggest worry at the moment is US general liability – it's not a balance sheet item for us and we are fully reserved out for that, but the risk of further latent claim developments by court rulings in the US remains a concern,” he explained.

“I'm not aware of any facts that this should not continue. That must be reflected by the underwriters, and I expect answers, because we've seen a lot in the last five years and that needs to be reflected in the pricing.”

Rising social tensions and an increase in civil unrest across the globe have placed PVT in the spotlight, Keese said, adding that the heightened risk landscape must be reflected in rate. D&O and cyber also remain under the microscope, continuing a trend started last year.

As previously reported, Keese revealed in March that the market missed its calendar year premium target by ~£4bn due to a deterioration in underwriting conditions in some classes of business.

“The market is very mature in the way in which it is dealing with these problem lines,” he said.

“Last year we didn't fulfil our growth plans because we couldn't write in D&O and cyber as we wanted to as the underlying conditions were not allowing prudent underwriting. Because of this we forego business opportunities. This is underwriting discipline and to maintain that underwriting discipline is key – we really need to focus on this as we can't allow for any slippage as we have seen in the past.”

Keese was speaking after Lloyd’s reported a combined ratio of 83.7 percent for the first six months of 2024, its best interim result since 2007.

The result marked a year-on-year improvement of 1.5 percentage points, while the underlying combined ratio improved slightly to 80.6 percent from 81.6 percent in H1 2023.

The combined ratio included “very little” natural catastrophe impact at just 3.1 points, which included the Baltimore bridge loss (circa £500mn) and the earthquake in Taiwan (£100mn).

While Keese welcomed the improvement in the combined ratio, he warned that the Atlantic hurricane season is not over, with a highly active season predicted by forecasters.

He added that the standout performance indicator is the underlying combined ratio, which excludes the impact of large losses. At 80.6 percent for H1, Lloyd’s has now delivered an underlying combined ratio of around 80 percent for 12 consecutive quarters.

“What an underlying combined ratio of 80 percent gives you is a 20 percent margin before the combined ratio touches 100 percent. If you assume £38bn of net premiums earned, which we should reach by year-end, that 20 percent is equal to £7.6bn from large losses.

“The impact of Covid-19 was only £3.5bn. To put it in real-world terms, the impact of the Harvey, Irma, Maria hurricanes from 2017, indexed for today and divided by the net premiums earned, would be something like 11.7 percent on the combined ratio.

“That is the essential metric for our investors to understand; even in a year like 2017, where we had three major landfall hurricanes, we could be under 95 percent. This is what our investors need to see a decent return on capital.”

In addition, pre-tax profit jumped to £4.9bn while underwriting profit increased by 24 percent to £3.1bn. GWP rose 6.5 percent to £30.6bn, excluding foreign exchange movements. The market recorded a 1.7 percent reduction in the attritional loss ratio to 49.2 percent, as well as a 0.9 point reduction in the expense ratio to 34.5 percent.

“The expense ratio reduction is as planned,” Keese said. “Since 2019 we have saved 5 percentage points on expense ratio. Now compare this with our peers and show me one to save 5 percent of their expense ratio. We’ve done well on that side, but we are not yet finished.”

Despite the positive results, Keese reiterated Lloyd’s full-year guidance. As previously reported, Lloyd’s is expecting a combined ratio of between 90 and 95 percent in 2024 and is targeting GWP of £57bn in 2024, with 5 percent leeway either way.