Lloyd’s of London has warned of a “challenging year” of natural catastrophes, Russia’s invasion of Ukraine and inflation as the world’s oldest insurance market braced for a £1.1bn hit from unrecoverable planes and cargoes related to the war in Ukraine.
The group said it had set aside the sum for customers affected by the conflict, mostly for grounded aircraft, ships trapped in the Black Sea and disrupted exports of cereals and agricultural products from Ukraine and Russia.
Bruce Carnegie-Brown, the chairman, said Lloyd’s had estimated the losses using the same methodology as for the Covid-19 pandemic but only about 4% of claims for losses from the war had been received so far. The pandemic was far more costly for the Lloyd’s market, where 76 firms operate, at £3.5bn. Overall, the war in Ukraine could cost the global insurance industry £10bn to £12bn, according to industry estimates.
Lloyd’s has worked with the UK government to implement sanctions imposed over the war, including cancelling Russian firms’ insurance cover. At the same time, it insures ships transporting grain from Ukraine’s ports under a UN-brokered deal in July, up to a limit of $500m (£433m).
“These grain exports are going to emerging market countries and the countries that are most vulnerable to famine as a result of the food shortage. A number of them have been docking in east Africa as we speak,” Carnegie-Brown told the Guardian.
“These exports are on ships that are trapped in Ukraine. The key issue will be whether people are willing to sail back into the Black Sea to pick up further exports of grain and we haven’t reached that point yet … Time will tell, but so far the results are good.”
As the cost of living crisis worsens, the corporation will make a one-off £2,500 payment to about 1,000 staff who earn less than £75,000 a year, 60% of its headcount, to help them with soaring energy and food bills.
Despite the £1.1bn hit from the Ukraine invasion as well as flooding claims in Australia and Europe, Lloyd’s improved its underwriting profit to £1.2bn in the first six months of the year from £960m a year earlier. However, a £3.1bn investment loss caused by higher interest rates pushed Lloyd’s into an overall pre-tax loss of £1.8bn in the first half, against a profit of £1.4bn a year earlier.
It noted that financial markets had a difficult first half of the year as global stocks fell sharply, and bonds sold off as their yields jumped as a result of markets expecting higher inflation. Most of the investment loss was driven by valuation losses on fixed-income securities but Lloyd’s said these losses would reverse as the bonds matured over the next two years.
John Neal, the Lloyd’s chief executive, said: “With political and economic uncertainty looming large over society, it’s more important than ever that insurers are ready to support.
“Rising interest rates, while prompting an unrealised investment loss on paper at the half year, will be good news for insurers in the long term as returns on assets strengthen in 2023 and beyond.”
Lloyd’s third annual culture survey showed some progress towards its target of 35% of leadership positions filled by women by the end of 2023 – it is now at 30%, up from 29% last year. A third of new hires come from ethnic minority backgrounds at the corporation, while the rest of the market has yet to achieve this target, where one in five are currently from ethnic minorities.
Insurance brokers and agents have slowly returned to the Richard Rogers-designed Lloyd’s building in the City of London since Covid restrictions were lifted. About 3,000 people come in to do face-to-face business every week now, compared with 5,000 before the pandemic. They tended to go to the office on Tuesdays, Wednesdays and Thursdays, while “the market remains quite quiet on Mondays and Fridays”, Carnegie-Brown said.
