Lloyd's of London has taken a £1.4 billion hit from Donald Trump's Iran war as first-half profits fell 17 per cent. The insurance market saw earnings for the first six months of the year drop to £3.5 billion following a surge in claims from the Middle East conflict and turbulence across global bond markets.
The insurance marketplace was buffeted by heavy claims linked to attacks on maritime shipping through the Strait of Hormuz and strikes across Gulf states. Senior executives warned that financial volatility and international conflict have disrupted traditional risk calculations.
Chief Executive Patrick Tiernan told the Financial Times that the £1.4 billion in losses arising from the Middle East conflict mostly stemmed from physical damage to infrastructure on land.
Despite the severe disruption, Lloyd's continued to provide insurance cover and expert advice to its commercial clients throughout the ongoing fighting, according to the market's leadership.
Emergency response and maritime risk
Underwriters at Lloyd's provide specialist insurance cover for major risks across the world, including commercial shipping, terrorism, property, fine art, and racehorses. As conflict escalated across the Middle East, insurance teams worked continuously to evaluate rising threats.
Tiernan said underwriters worked through the initial weekend of the conflict, with some sleeping in their offices as they continued to assess and quote maritime and other relevant risks. Quotes kept coming even when shipowners chose not to take them up because the risks to crews and vessels were simply too great.
Bond market volatility depresses investment returns
In addition to direct insurance losses from the war, Lloyd's reported a sharp drop in investment earnings due to turmoil in global bond markets. Investment returns fell by £3.2 billion to £1.8 billion as a result of movements in the value of its bond holdings.
The insurer noted that volatility across financial markets was stoked by heightened concerns around inflation, fiscal policy, and geopolitical developments. Insurance markets typically hold substantial portions of their capital reserves in government and corporate bonds to back potential policy claims.
The role of the London insurance market
Founded in the late seventeenth century, Lloyd's of London is the world's leading specialist insurance and reinsurance market. Operating out of the City of London financial district, the market does not write insurance directly as a single company. Instead, it functions as a subscription marketplace where independent syndicates and underwriters come together to pool and spread complex international risks.
The Strait of Hormuz, where recent shipping attacks occurred, is a strategic maritime choke point located between Iran and Oman. Connecting the Persian Gulf to the Gulf of Oman, the waterway handles a major share of the world's seaborne crude oil supply, making war risk insurance essential for international tankers and cargo vessels operating in the region.
Warning over a structurally disorderly world
Tiernan issued a broader warning regarding the global economic and security landscape, stating that recent events provided further evidence that the market is now operating in a world that is "structurally disorderly rather than just passing through a period of heightened volatility."
He warned that the infrastructure foundations on which the insurance industry has based many of its assumptions over the past 80 years are becoming less stable. He highlighted a wide range of compounding global threats affecting international commerce.
These hazards include increased threats from fire, floods, and drought caused by climate change, alongside terrorism, war, cyber-attacks, trade sanctions, tariffs, and the broader collapse of the rules-based order on which global trade depends.
Threat of further geopolitical fragmentation
Looking ahead, Tiernan warned that there is every possibility the international order could fragment further, with less global consensus and more unilateral state action. He noted that such fragmentation could result in heightened geopolitical instability, faster-moving conflicts, and reduced warning time as diplomacy becomes less effective.
While the insurance industry has extensive experience managing individual hazards, Tiernan stressed that insurers have much less experience managing so many threats simultaneously as global trade faces compounding pressures.
