Despite ongoing rate increases in traditional Lloyd’s market classes there remains pressure to continue to improve the underwriting performance, suggesting rates will need to improve further, according to analysts at Peel Hunt.
A reduction of market capacity and the impacts of the ‘Decile 10’ review at the specialist Lloyd’s of London insurance and reinsurance marketplace, continues to drive rate increases across multiple lines of business.
Analysts at Peel Hunt note that traditional lines of business at Lloyd’s, such as marine, aviation and large ticket property, are experiencing positive rate momentum and as such, underwriters are considering increasing their exposure in certain areas.
Marine rates are up a cumulative 5-10% in the past two years, while large ticket property rates are up 20-30% on a cumulative basis, with the positive momentum in property being well spread across the book, including property binders, and direct facultative, say analysts.
However, analysts warn that there remains pressure to “improve the underwriting performance in the Lloyd’s market hence rate increases are not only sustainable but will need to improve further.”
Across specialty classes, analysts note that underwriters in the marketplace agreed that rates were improving but that more needs to be done to bring the London market back “onto a sustainable profitable footing.”
Rate hikes are better than budgeted, and analysts say that they are widespread and improving month-on-months.
“It seems these rates are sustainable, coming off the lows of the soft cycle, however further rate increases are needed to offset the increased frequency and severity of attritional claims. There seems to be more confidence that the profitability of the Lloyd’s market book can recover,” said analysts.
Discussing catastrophe lines, Peel Hunt states that while there is no capacity crunch, it does appear that the market is orderly and becoming more disciplined and supported by the ongoing reforms at Lloyd’s.
“There seems to be a significant capital loading on even marginally increasing property catastrophe exposures at Lloyd’s, which is holding underwriters back from increasing their risk appetite,” said analysts.
Peel Hunt also highlights a somewhat more positive environment in the casualty space, with casualty lines in the U.S. starting to see material rate increases in classes that are affected by rising claims trends. However, capacity is also retracting here, and analysts have warned that it remains unclear whether rate rises witnessed so far are sufficient.