Despite a maelstrom of negative commentary on the rating environment, the listed Lloyd's carriers bested their 2013 performances in the first half of this year as improved investment returns helped to offset widening combined ratios.
The six companies in The Insurance Insider's Lloyd's composite delivered a return on average net tangible assets (Ronta) of 17.6 percent. This outpaced the 17.1 percent return achieved in the first half of 2013 and is the composite's strongest result in the last five years, as well as being significantly stronger than the 10.2 percent five-year average.
The five-year average is far lower than a typical year owing to the impact of 2011, when Amlin and Catlin delivered negative returns in excess of 20 percent as the big cat writers took major hits from New Zealand II and the Tohoku earthquake.
Catlin was the composite's surprise standout performer as its Ronta doubled to 20.6 percent, while pre-tax profits were 34 percent ahead of consensus at $318mn.
The firm's vastly improved investment result was one of the main drivers behind the uptick in performance. After booking investment income of just $16mn in the first half of 2013, equivalent to a 0.2 percent annualised return, the biggest Lloyd's carrier delivered $148mn of investment income, amounting to a 1.6 percent return, in the six months to 30 June.
Most of the Lloyd's insurers benefited from a reallocation of funds from government to corporate bonds, which performed better in the first half.
Beazley was some way back with Ronta of 19.1 percent, again far stronger than its H1 2013 performance of 13.3 percent. After producing an investment return of zero in H1 2013, the specialty insurer secured a 1.1 percent return in the first six months of this year.
Despite Catlin's strong first-half performance, Beazley remains the strongest five-year performer at Lloyd's with a 14.4 percent return - partially reflecting its strong 2011 result.
Amlin narrowly beat Hiscox into fourth, as the cat-heavy Lloyd's player posted an 18.9 percent Ronta compared to an 18.6 percent return at its blue-chip peer.
In contrast to Catlin and Beazley, both Amlin and Hiscox saw their returns compressed in the first half of 2014.
Hiscox's Ronta was slashed from 24.2 percent to 18.6 percent. A £50mn foreign exchange (FX) swing was the big driver of the reduction, but underwriting performance also deteriorated and net earned premium started to shrink as a result of its sceptical stance on reinsurance pricing. With its investment return only 50 basis points stronger at 2.0 percent, Hiscox also had less to cushion its underwriting performance.
The 90 basis point narrowing of Amlin's returns reflected a wider combined ratio and its investment return of 1.3 percent, which was 10 basis points weaker than in H1 2013 - making it the only member of the composite to underperform the prior-year period.
Brit Insurance - back in the public arena after a short and successful period as a private business - saw its Ronta narrow from 22.1 percent to 16.7 percent.
Novae continued to lag behind the rest of its peer group as its returns came in by 30 basis points to 11.5 percent, but the return would have been around 6 percentage points stronger if a negative £9.3mn FX movement was stripped out.
The Lloyd's sector performed broadly favourably against analysts' expectations. In addition to Catlin's significant outperformance, Hiscox cleared forecasts by 19 percent. Amlin and Beazley both produced pre-tax profits that were 3 percent ahead of analysts' predictions. Novae was modestly below consensus, whilst Brit missed, but only on its FX charge and IPO costs.
Share price performance has been very mixed since close on 21 July - before the start of the results season. Amlin shares are currently 8.3 percent weaker, Hiscox is off 7.7 percent and Catlin is 4.1 percent lower despite a surge after its own results. Beazley is down 0.4 percent. Novae and Brit have received a more positive response from investors, with their shares up by 5.4 percent and 4.0 percent respectively.