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ICMR forecasts below 90% combined ratio for Lloyd’s

3rd March 2023 - Author: Matt Sheehan

Specialist analytics and consulting firm Insurance Capital Markets Research (ICMR) is forecasting that insurance and reinsurance marketplace Lloyd’s will report a sub-90% combined ratio for 2022.

Using the reported data of the RISX index constituents, ICMR predicts that Lloyd’s will report its best underwriting result since 2014.

The RISX index comprises the publicly listed global specialty re/insurance companies who provide most of Lloyd’s capital and uses premium, not market capitalisation, to weight components.

One advantage of this is that these companies report some time before Lloyd’s announces its result, giving early insight into the likely performance of the market.

Historically, ICMR notes that Lloyd’s combined ratio follows the RISX index weighted combined ratio closely, being slightly better in profitable years and slightly worse in unprofitable years, which can be attributed to Lloyd’s slightly greater overall volatility.

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The combined ratio for the RISX index portfolio is currently predicted at 93%, which in the view of ICMR points to Lloyd’s 2022 combined ratio likely being below 90%.

“This would continue the improvement observed last year with a reduction to the low 90s and reflects the much improved underwriting environment,” analysts noted. “It is also a reflection of central decision making at Lloyd’s over who they allow into the market and who they allow to grow their businesses.”

RISX portfolio combined ratios are the weighted aggregated reported combined ratios of the index constituents.

The close match with Lloyd’s pro-forma combined ratio indicates that RISX mimics the market’s risk profile and hence, is a reasonable proxy and investment benchmark for the Lloyd’s market.

Additionally, ICMR notes that the weighting methodology of RISX, using premium rather than market capitalisation, ensures the index correlates more with Lloyd’s risk profile than wider equity markets.

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