Squeezed by inflation and escalating geopolitical tensions, Lloyd’s of London, the historic insurance market, suffered a decline in profit in the first half of the year. The impact was most acute in its marine business, which came under severe pressure at the height of the US war with Iran.

Lloyd’s, which operates not as a single insurer but as a marketplace where more than 50 syndicates underwrite risk, has for centuries been a bellwether for global trade shocks, and few corridors matter more than the Persian Gulf.

Over the past six months, the world’s largest insurance market has navigated a rapidly evolving and increasingly volatile global landscape shaped largely by conflict in the Middle East. The marine sector came under severe strain, with reports of thousands of vessels trapped in the Persian Gulf at the height of the US–Iran war.

The closure of the Strait of Hormuz and strikes on vessels in the waterway forced the London Joint War Committee — a group of marine insurance experts run by the Lloyd’s Market Association (LMA) alongside the International Underwriting Association (IUA) — to expand its designated high-risk areas to include the coastlines of Bahrain, Qatar, and Oman. The move prompted a sharp rise in premiums as insurers priced in the risk of attack. The Strait is one of the world’s most critical energy chokepoints, normally carrying roughly a fifth of globally traded oil and liquefied natural gas, which is why war-risk pricing there ripples through global shipping costs. The episode echoes the premium spikes seen in nearby shipping lanes in recent years, when attacks on commercial vessels in the Red Sea and surrounding waters prompted similar high-risk designations and reroutings.

In June, Lloyd’s had to step in to ensure ships could still access cover in the Strait, launching a $400m (£316m) war-risk facility.

Speaking to City AM, chief executive Patrick Tiernan argued that every major risk is now “disorderly at the same time,” and that the industry must move from trying to predict specific risks to being prepared for all eventualities.

“Last year we were talking about natural catastrophes, but this year, we’re talking about man-made catastrophes,” he added.

Because the threats are so deeply interconnected, Tiernan said the industry can no longer rely solely on traditional probability models that attempt to forecast specific disaster scenarios. The strategy, he said, must shift from predicting what will happen to being broadly prepared for anything that could happen.

“It is difficult to be in the prediction game. You just got to be in the prepared game,” he said.

Lloyd’s reported on Thursday that pre-tax profit fell 16.7 per cent to £3.5bn for the first six months of 2026. Its core business improved, however, with the market posting an underwriting result of £1.9bn, up from £1.5bn — a divergence that reflects how investment returns and one-off shocks can move headline profit even when underwriting discipline holds.

Navigating the soft market

The insurance market is currently in a softening cycle, Tiernan said. “We’re very cognizant of the fact that we are in a period where there is softening in the underlying prices,” he said, adding that the board is closely monitoring the underlying business to ensure it continues to hit its targets.

A softening insurance market is typically driven by abundant capital and high insurer profits from previous hard-market cycles, but it reduces premium rates and compresses profit margins for insurers. How long geopolitical risk premiums in marine lines stay elevated against that broader downward pricing drift is one of the key dynamics the market will be watching through the rest of the year.

Tiernan said: “We’re seeing those who are here already doing more business with us, or retaining more of their business and then we’re seeing some of those new entrants, those very high-profile insurance companies from Europe, the States, and further afield, now joining the Lloyd’s market.”

Jim Bichard, chief financial officer, told City AM: “A lot of that is because of the capital advantage which we believe is unique in Lloyd’s in terms of how much risk you can take, if you like, for every dollar of capital, and we think you can shoulder more of that risk here in Lloyd’s than you can anywhere else.”