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Insurance market Lloyd’s hit by loss after £6.2bn Covid payouts | Business


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The insurance market Lloyd’s expects 2020 payouts for claims related to the Covid-19 pandemic to reach £6.2bn, pushing it to a loss for the year.

Lloyd’s reported pre-tax net losses of £0.9bn for the year, blaming natural catastrophe claims and Brexit for hitting earnings alongside the pandemic. In 2019 it made a pre-tax profit of £2.5bn.

The expected £6.2bn Covid-19 payouts are significantly higher than the £5bn it had forecast in September, before second waves of the pandemic had fully hit developed economies.

Lloyd’s is hoping for a much-reduced level of claims during 2021, although the week-long blockage of the Suez canal trade route by the grounded Ever Given ship is likely to cost at least £100m in payouts.

John Neal, Lloyd’s chief executive, said it had faced a “triple threat” from the pandemic alongside extra “cost and complexity” from Brexit and the fifth-largest year for natural catastrophe payouts, excluding the virus.

Tug boats and dredgers attempting to free Ever Given in the Suez canal.

Lloyd’s believes the week-long blockage of the Suez canal trade route by the grounded Ever Given ship is likely to cost at least £100m in payouts. Photograph: Satellite image ©2021 Maxar Tech/AFP/Getty Images

However, it was the global disruption caused by the coronavirus that took a big toll. After taking into account reinsurance policies, the net cost of Covid-19 for the market was £3.4bn. The pandemic added 13 percentage points to its combined ratio, a measure of claims payouts and other costs v premiums paid by customers, pushing it to 110%.

For the insurance industry as a whole, it was likely to be the costliest year, Neal said.

Lloyd’s sales were also down during 2020, with gross written premiums dipping to £35.5bn, £400m less than the year before. Lloyd’s said this was down to “remediation of underperforming business” as it sought to “focus on the quality” of its custom rather than volume. It has ditched the worst-performing 20% of its business since 2018 as part of a turnaround plan.

The financial resources it could call on to cover claims grew during the year to £33.9bn.

Neal said that he expected “real success this year” and hoped that higher premiums would allow the market to grow for the first time in four years. However, he acknowledged that he was keeping a close eye on new variants of Covid-19, which could set back efforts to reopen economies.

Some Lloyd’s underwriters and brokers are likely to return to its headquarters in the City of London in the middle of April, after the latest English lockdown forced them to work from home again in December. The building, which has a vast central underwriting room designed by the architect Richard Rogers, will be able to run at about half capacity until physical distancing restrictions ease further in late June.

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Specialist insurance had been one of the financial sector’s most doggedly analogue industries, with a continued reliance on face-to-face interaction to set premiums for specific risks, but the pandemic forced it to accelerate efforts to embrace digital technology.

Neal, who was one of only a “handful of people” working from the headquarters to prepare its financial results, said he expected workers to come back to “three-plus days” in the office a week, with digital methods of doing business likely to endure. The pandemic had offered “an almost generational opportunity” to improve insurers’ use of technology, he said.

“There’s a place for both,” he said. “I still think there’s value in the physical interaction.”

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