Overall, there is an improved pricing environment in the London marketplace, which Fitch expects to result in better underwriting results going forward.
The improved price response in the London market has in part been driven by high levels of catastrophe losses experienced in recent years on the back of a softened market state, with many in the insurance and reinsurance sector anticipating significant rate increases at the upcoming January renewals season.
Also assisting with the improved pricing metrics is elevated underwriting discipline across the marketplace, and Fitch notes that the market-wide profitability review started by Lloyd’s in 2018 is now part of the annual planning process, which Fitch feels should continue to provide support to both pricing and underwriting discipline moving forward.
“The stable outlook reflects our view that the challenges of rising claim costs and low investment yields will be counterbalanced by improved underwriting and pricing discipline,” says Fitch in its UK Non-Life Insurance 2020 Outlook.
The efforts at Lloyd’s to improve the profitability of the marketplace has resulted in the closure of a number of syndicates in recent times, while others have announced plans to cease writing certain business lines that are failing to meet cost of capital requirements.
More recently, Aspen Re announced the closure of its Lloyd’s China reinsurance unit, while MS Amlin said recently that its Lloyd’s business had been less profitable than it had anticipated.
While there are clear benefits to operating in the Lloyd’s market it can be an expensive place to do business and as such, the returns currently on offer for the risks being taken might not meet the requirements for some in what remains a very challenging and competitive operating landscape.
While the outlook for 2020 has improved for the London market, Fitch notes that for the UK non-life insurance company market, it has revised its outlook for next year to negative, which is a reflection of high claims inflation and a weak pricing landscape for both home and motor insurance lines.
Ultimately, Fitch warns that these metrics are likely to result in reduced underwriting profitability for the UK non-life insurance company market, while regulatory measure designed to reform pricing practices, such as the Ogden rate changes, could also hit profits and add pressure to business models.
“Despite the challenging market conditions, our rating outlook for both the UK non-life company market and London market is stable, indicating that we expect the majority of ratings to be unchanged over the next two years. This reflects the resilience of rated insurers’ credit profiles given their strong capitalisation and well-diversified business profiles,” says Fitch.