A combination of wildfires in Canada, floods in Texas and earthquakes in Japan and Ecuador dented profits at Lloyd’s, the insurance market, in the first half of the year.
The Fort McMurray fires were particularly expensive, costing more than £400m. That was more costly than any event in the first half of 2015.
But John Nelson, Lloyd’s chairman, does not believe that the impact of the disasters will be enough to push up prices, which have been falling across the market over the past few years.
“There’s little sign of rates going up,” he said. “In some sectors there are cases of rates at least stabilising but we can’t see much that will drastically change the approach to rates.”
Lloyd’s combined ratio — claims and costs as a proportion of premiums — worsened from 89 per cent to 98 per cent in the first half, meaning that the market was only just profitable at the underwriting level. The impact of the disasters, along with weaker pricing, offset growing demand for new types of business such as cyber.
However, the market did manage to push its pre-tax profits up by 22 per cent to £1.5bn thanks to improved investment returns as the value of the bonds it holds rose.
Speaking as Lloyd’s reported its first-half numbers, chief executive Inga Beale described the Brexit vote as “a major issue for us to deal with”.
Lloyd’s uses passporting rights to access business in other parts of the EU and said recently that it might have to move some of its business elsewhere if they are lost. It has been lobbying for the rights to be maintained in Brexit negotiations.
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Mr Nelson added that there was growing support for his position on the continent. “There’s a growing feeling within the EU, driven by the big financial services providers, that they are as keen to maintain passporting as we are. People are beginning to see the consequences of having them.”
For the moment though, Lloyd’s is working on contingency plans in case the rights disappear. To do that it has had to step back from other projects such as a plan to create a new index to track losses across the market. The index was to have been used as the basis for a new range of securities, but work has been postponed.
“It’s a question of resources,” said Mr Nelson. “We run a fairly tight ship here.”