Lloyd’s has maintained its outlook after stronger first-half underwriting earnings, while CEO Patrick Tiernan has warned of eroding rate adequacy and the need for discipline.

Gross written premium increased 6.9% to £34.7 billion ($65.2 billion) as volume growth more than offset a 6.7% rate decline.

The combined operating ratio improved to 90.8% from 92.5%, but profit before tax fell 16.8% to £3.5 billion ($6.6 billion) as unrealised fixed-income losses affected the investment result.

“While our assessment of long-term rate adequacy remains above the level required to deliver a 95% net combined ratio, the continuing erosion of adequacy in core markets comes as an array of risk signals are flashing more urgently,” Mr Tiernan said.

Underwriting discipline and innovation are key to earnings quality and Lloyd’s is becoming increasingly selective about business entering the market as the pricing cycle softens, he says.

Lloyd’s reported £1.4 billion ($2.6 billion) of losses from the Middle East conflict, and natural catastrophe impacts fell compared with the year-earlier period, which included California’s wildfires.

Mr Tiernan says defence, energy and infrastructure represent long-term growth avenues, if the market can respond.

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“The growing concentration of capacity in core markets suggests we are in danger of missing this opportunity, with competition driving capital towards familiar risks – weakening terms and pricing – rather than towards the new risks emerging around us.”

Mr Tiernan says private capital is key in addressing risks. He warns some companies in advanced economies are looking to public funds – which face rising pressures – even when insurance is available.

“Not every decision to go uninsured or underinsured is necessarily the product of an affordability calculation,” he said.

“Governments play an essential role – especially where extreme tail risks exceed reasonable commercial capacity, but the guiding principle here must surely be that the state provides protection for those that cannot afford it, not those who choose not to pay.”

Mr Tiernan says closing the “perception gap” requires clarity about “who is responsible for what”, so public resources are directed where needed, rather than to “risk-takers who are inclined to privatise any upside and socialise any downside”.

The risk environment includes climate-amplified pressures on infrastructure, rising incidents of terrorism and political violence, cyber and artificial intelligence trends, and geopolitical shifts.

“The industry has experience of many of these individual threats. We have much less experience of managing so many of them simultaneously,” Mr Tiernan said.