Bond meltdown pushes Lloyd’s of London to £800m loss

Lloyd’s of London plunged to an £800 million loss for 2022 it revealed today after big payouts relating to the war in Ukraine and Hurricane Ian in the US came alongside a drop in the value of its investment portfolio.

The annual loss before tax followed a profit of £1.7 billion a year earlier. Lloyd’s put liabilities from the war at £1.4 billion.

Hurricane Ian, which hit Florida in September, was “the costliest weather event of the year”. Previous estimates of payouts for the storm were put at between $2.3 billion (£1.9 billion) and $3 billion by Lloyd’s. Major claims for 2022 were £4.1 billion in total, up from £2.9 billion in 2021.

A strong showing in Lloyd’s core business — where gross written premiums rose by £7.5 billion to £46.7 billion — meant the overall loss was driven by a drop in the value of its investment portfolio of £3.1 billion, largely from the stockpile of Government bonds Lloyd’s holds, which it sells when it needs to make payouts.

Chief executive of Lloyd’s John Neal told the Standard that the accounting rules that require insurers to report large swings in the value of their bond holdings were “weird” today, adding: “The idea money has been lost is rubbish.”

“We’ve not sold anything, we’re holding [the bonds] to maturity and obviously, their yield is going up — so this year you’ll see unrealised gains, “he said. “That £3 billion comes back in 2023/2024/2025.”

As central banks have been lifting interest rates, demand for Government bonds has fallen, knocking the value of the assets, which are widely owned throughout the financial system. The unrealised losses have bedevilled the sector, adding to stress at already troubled banks such as Credit Suisse and Silicon Valley Bank.

London insurers are big holders of bonds, because they are generally safe investments that are usually easy to sell to raise cash for payouts. Neal pointed out that over a longer time frame, rising yields meant the value of bonds over the whole period that they were being held was greater, even though rules require a snapshot of temporary asset values to affect results.

“There are moments in time when on an accounting basis you have to realise the position. The ‘nonsense’ of this for us comes in 2022, when we’ve got our best underwriting results since 2006 and yet we’re showing a loss,” he said. “It’s hard work for the average man in the street to think ‘what on earth is going on?’”

Lloyd’s made a profit of £2.6 billion from its underwriting business, up from £1.7 billion.

Its core market continued to grow, with companies prepared to increase spending on increased perception of risks, highlighted in part by the invasion of Ukraine and concern at the impact of climate change.