Lloyd’s of London is braced for a £1.25 billion (€1.44 billion) hit from the grounded planes, stranded cargoes and bad debts caused by Russia’s war in Ukraine, as the specialist insurance market starts to feel the losses caused by the conflict.
John Neal, Lloyd’s chief executive, said there was significant uncertainty over the level of insurance claims from Ukraine, but the market had a good idea of the exposed areas so far and had calculated a “very firm financial reserve”.
“Our view has always been — get your arms around what you think the loss could be and reserve it,” Mr Neal told the Financial Times, pointing out that only 4 per cent of expected claims had been received.
A big part of the uncertainty comes from a legal struggle between aviation insurers and their policyholders, which has meant some insurers have shied away from predicting claims levels. Aviation accounts for roughly a quarter of expected Lloyd’s payouts, with losses also expected from insurance lines such as marine and credit.
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Mr Neal said the Ukraine war was not a “critical” event for the market itself, damping earlier fears of a multibillion-dollar loss. He predicted Ukraine-related losses could reach £10 billion-£15 billion across the insurance sector.
Lloyd’s also has to cope with a growing list of sanctions arising from the war, where restricting access to the global insurance market is being used as a key policy tool against Moscow.
The market, which published aggregate half-year figures on Thursday, said it had taken £1.1 billion of the Ukraine hit, net of reinsurance, in the first half. Despite that, and other headwinds such as inflation in claims costs, it posted an underwriting profit — an aggregate figure for the more than 50 insurers that operate in the market — of £1.2 billion, up from £1 billion in the same period last year.
Its combined ratio, which measures claims and expenses as a proportion of premiums, was 91.4 per cent, its best level since 2015 and helped by lower expenses and an upswing in insurance prices that has now stretched for five years.
After a huge sell-off in bond markets from rising interest rates, Lloyd’s took a £3.1 billion mark-to-market loss on its investments that left it with an overall pretax loss of £1.8 billion.
Mr Neal stressed the loss would unwind and that higher yields would deliver investment returns of £3 billion a year in 2023 and 2024.
Lloyd’s became the latest employer to help lower-earning staff cope with the cost of living crisis. It is paying £2,500 to employees earning below £75,000, and will backdate a previously agreed pay award for three extra months, it told staff on Wednesday. — Copyright The Financial Times Limited 2022
