Annual Report 2015 1.0 Introduction 2.0 Strategic Update 3.0 Financial Statements 4.0 How Lloyd’s Works January — Conduct Standards April — Lloyd’s publishes July — Lloyd’s announces plans October — Lloyd’s expands into Assurance team established to 2015–2017 Strategy to apply for onshore reinsurance new offices in Singapore and promote high standards of licence in Malaysia opens first office in Mexico customer service February — Lloyd’s opens May — Feast or Famine report August — Business Blackout November — Lloyd’s launches specialist underwriting highlights insurance implications report considers the insurance inaugural Innovation Awards platform in Dubai of food safety and security implications of a cyber attack on the US power grid March — Lloyd’s opens branch June — Lloyd’s global offices September — Results for first December — Prudential Regulatory office in Beijing take part in activities to mark six months of 2015 announced Authority approves Lloyd’s internal UN World Environment Day model for Solvency II The Lloyd’s market profit for 2015 was £2.1bn. Lloyd’s capital position was further strengthened with total resources of £25.1bn and ratings were reaffirmed, at A+ with Standard & Poor’s, AA– with Fitch Ratings and A with A.M. Best. Our Business Lloyd’s accepts business from over 200 countries and territories worldwide. Licences in over 75 jurisdictions, supported by a network of local offices and coverholders across the world, ensure access to insurance markets large and small. (All figures are as at 31 December 2015.) Syndicates % of the FTSE 250 insured at Lloyd’s 84 63 Coverholders % of the Fortune 500 insured at Lloyd’s 4,008 65 Brokers Countries and territories 242 220 Total resources (£bn) 25.1 Lloyd’s class breakdown by region (Figure 1) US and Other United Rest of Central Rest Total Canada Americas Kingdom Europe Asia & of the for all Asia World Regions Pacific Reinsurance 24% 70% 26% 32% 46% 63% 32% Property 35% 7% 25% 18% 16% 8% 26% Casualty 23% 12% 23% 20% 25% 11% 22% Marine 7% 5% 6% 18% 8% 7% 9% Energy 7% 3% 2% 6% 2% 3% 5% Motor 2% 1% 17% 2% 1% 3% 4% Aviation 2% 2% 1% 4% 2% 5% 2% Total GWP 47% 7% 18% 14% 10% 4% 100% Lloyd’s capital providers by source and location (Figure 2) 2015 2014 US insurance industry 20.5% 22.0% Japan insurance industry UK insurance industry European insurance industry 13.7% 6.8% Bermudian insurance industry 22.4% Private capital – limited 13.4% & unlimited RoW insurance industry 12.8% 6.7% Worldwide non-insurance 18.7% 12.6% Middle/Far East insurance industry 10.5% 11.2% 9.9% 6.4% 3.3% 2.9% 3.3% 2.9% Introduction 01 2015 At a Glance Financial highlights — Lloyd’s made a profit of £2,122m (2014: £3,016m) — Combined ratio of 90.0% (2014: 88.4%) — Gross written premium of £26,690m (2014: £25,259m) — Capital, reserves and subordinated loan notes stand at £25,098m (2014: £23,413m) Gross written premium* Result before tax £m £m 2011 23,337 2011 (516) 2012 25,173 2012 2,771 2013 25,615 2013 3,205 2014 25,259 2014 3,016 2015 26,690 2015 2,122 Capital, reserves and subordinated debt Central assets* and securities £m £m 2011 19,114 2011 2,388 2012 20,193 2012 2,485 2013 21,107 2013 2,384 2014 23,413 2014 2,578 2015 25,098 2015 2,645 Return on capital Combined ratio % % 2011 (2.8) 2011 106.8 2012 14.8 2012 91.1 2013 16.2 2013 86.8 2014 14.1 2014 88.4 2015 9.1 2015 90.0 The pro forma financial statements (PFFS) are prepared The PFFS include the aggregate of syndicate annual accounts so that the financial results of Lloyd’s and its members taken (Aggregate Accounts), members’ funds at Lloyd’s (FAL) and together and their net assets can be compared as closely the Society of Lloyd’s financial statements. As noted on page 67, as possible with general insurance companies. the 2014 figures have been restated following adoption of the new UK GAAP accounting standards. *See glossary on inside back cover. Lloyd’s Annual Report — 2015 02 Contents 03 Introduction 18 Lloyd’s Strategy 2016–2018 46 Market Performance 04 Chairman’s Statement 18 Chief Executive’s Foreword 47 2015 Highlights 06 Chief Executive’s Statement 20 Vision 2025 22 Objectives of the Eight Strategic Priorities 60 Financial Statements 08 Strategic Update 23 External Environment 25 Lloyd’s Key Risks 60 Market Results 27 Overview of Lloyd’s 62 Statement of Council’s 10 Strategic Review Performance Metrics Responsibilities and Report Framework of PricewaterhouseCoopers 11 Market Oversight 28 Market Oversight LLP to the Council of Lloyd’s Tom Bolt 30 Global Market Access on the 2015 Pro Forma 12 Global Market Access 32 Ease of Doing Business Financial Statements Vincent Vandendael 34 Capital 64 Pro Forma Profit & 13 Ease of Doing Business 36 Innovation Loss Account Shirine Khoury-Haq 38 Talent 65 Pro Forma Balance Sheet 14 Risk and Regulation 40 Brand 66 Pro Forma Statement of Sean McGovern 42 Global Corporate Social Cash Flows 15 Capital Responsibility 67 Notes to the Pro Forma John Parry 44 Delivering the Strategy Financial Statements 16 Innovation Gavin Steele 17 Key Achievements in 2015 Lloyd’s Annual Report — 2015 Introduction 03 Introduction 90 Society Report 191 Managing Agents and Syndicates 92 Financial Highlights 93 Corporate Governance 110 Internal Control Statement 194 How Lloyd’s Works 112 Report of the Remuneration Committee 196 What is Lloyd’s? 129 Report of the Audit 197 Lloyd’s Market Structure Committee 199 Lloyd’s Business Model 131 Report of the Lloyd’s 204 Lloyd’s Value Creation Members’ Ombudsman 206 Lloyd’s Market Governance 132 Financial Review 138 Statement of the Council of Lloyd’s Responsibilities for the Financial Statements 139 Independent Auditor’s Report to the Members of the Society of Lloyd’s 144 Group Income Statement 145 Group Statement of Comprehensive Income 146 Group Statement of Financial Position 147 Group Statement of Changes in Equity 148 Group Statement of Cash Flows 149 Notes to the Financial Statements 190 Five Year Summary Lloyd’s Annual Report — 2015 2015 — Emerging Risks As infrastructure becomes ever more interconnected, Lloyd’s Business Blackout report demonstrated how modelling for extreme scenarios, including cyber attacks, could help develop products to mitigate the impact of events such as failure of a power supply. Lloyd’s Annual Report — 2015 Introduction 04 Chairman’s Statement Lloyd’s Annual Report — 2015 Introduction 05 In a market undeniably tougher than seen for many higher rates of GDP growth and low levels of years, in 2015 we have had to demonstrate our insurance penetration. I have personally focused determination, innovative thinking and ability to on many of these, advocating not only the Lloyd’s adapt and take action. market and model but also how the use of insurance to mitigate and transfer risk tangibly contributes to The significant pressure on premium rates and economic sustainability, growth and improved quality exceptionally low investment returns have, naturally, of life. Our aim is that the Lloyd’s market will continue had an impact on our results. Low interest rates and to contribute and be ready to grasp opportunities low investment returns generally in the capital markets presented by the re-balancing of the global economy. continue to attract additional capital into the sector. Nothing, of course, can be achieved without the Against this background, the profit for the Lloyd’s expertise and commitment of those who work in the market was reduced to £2.1bn (2014: £3.0bn); Lloyd’s market and directly for the Corporation, which gross written premiums grew by 6% to £26.7bn; has an outstanding leadership team under Inga Beale. the combined ratio was 90.0%; and return on capital was 9.1%. Our capital position remains exceptionally We benefit from the wise counsel of both the Council strong with our total capital increasing to £25.1bn of Lloyd’s and the Franchise Board. I would like to (2014: £23.4bn). Our ratings remain at A+ (strong) thank Rupert Atkin, both as a Deputy Chairman and with Standard & Poor’s AA− (very strong) with Fitch Council member, and Chris Harman and Alan Lovell, Ratings, and A (excellent) with A.M. Best. both Council members, who retired in January, for their significant contribution over a number of years. In these conditions, these results are creditable and We welcome Julian James, Neil Maidment and Philip a tribute to the continued skill and professionalism Swatman, as members of the Council. I would also like of the Lloyd’s market underwriting community. to congratulate Simon Beale, on his appointment as a The results are supported by the market’s prudent Deputy Chairman. On the Franchise Board, we will be reserving position overall and the consequent welcoming Richard Keers at the end of May. Bruce significant reserve release in respect of prior years. Van Saun, who has re-located to the United States, is retiring from the Franchise Board. I want to thank Our response to this climate must be to focus on Bruce for his wise counsel and great contribution. underwriting discipline, on which the Franchise Board remains particularly vigilant, remain attentive to Finally, Tom Bolt, Director of Performance emerging risks and become an even more attractive Management, will be leaving Lloyd’s at the end of platform: widening global access, making it easier to April. Tom has done an outstanding job for Lloyd’s do business and fostering innovation – all part of our over the last seven years and is highly respected in Vision 2025 strategy.