Global insurance spending is likely to double in the next decade, driven by a greater perception of risks such as banking failures and climate change, the chief executive of Lloyd’s of London has said.
John Neal told the Financial Times that “financial risk”, following bank failures in the US and Europe as well as systemic threats such as pandemics and climate change, would fuel demand for cover.
“The purchase and penetration of insurance is going up at a rate that is likely to see insurance purchases double in the next decade, life and non-life,” he predicted. Neal highlighted growth in core insurance markets such as US property as well as faster-growing segments such as cyber and intellectual property cover.
Lloyd’s is a specialist insurance market based in central London where more than 50 insurers underwrite risks pitched by about 400 broking firms, in policies covering everything from hurricanes to soured debts.
In outlook figures published on Thursday, Lloyd’s said premiums written across the market this year should hit about £56bn, up from almost £47bn in 2022, as prices rise for commercial insurance and reinsurance. The forecast was included in its full-year results on Thursday, which confirmed previously announced profit figures.
Neal said it was the first time that Lloyd’s had provided such forecasts, and it was part of a concerted effort to shake off the market’s “quirky” reputation and make it more “user-friendly” to outside investors. He said Lloyd’s should be held to the same standard as a listed company and would “have an obligation to come back and tell people” if performance diverted from its targets.
The aged market is increasingly opening up to outside investors, including through its so-called London Bridge structure to allow institutional investors to gain direct exposure to underwriting risks.
The other two parts of the outlook are for a combined operating ratio — a measure of underwriting profit that calculates claims and expenses as a proportion of premiums — predicted to be below 95 per cent for 2023, and a projected yield on its investments of more than 3 per cent.
As previously announced, a mark-to-mark fall in the value of its bond holdings drove Lloyd’s to an £800mn net loss last year, but rising prices helped it post the best underwriting performance since 2015 despite billions of dollars in claims flowing from the war in Ukraine and Hurricane Ian, which hit Cuba and the south-east US in September.
Lloyd’s has just under £33mn exposure to banks’ AT1 bonds that includes an unspecified amount to Credit Suisse.
Neal said Lloyd’s was “alert” to the current problems in the banking industry and any spillover to insurers and reinsurers. Less than a tenth of the market’s almost £100bn in its investment portfolio is directly exposed to banks, with half of that in the US and a very small share for regional banks.
“Credit to governments and credit to the regulators; they have learnt their lessons from 2007, 2008, they are acting swiftly and they are acting efficiently. So far, so good.”
