Analysts at Jefferies expect the Lloyd’s of London re/insurance market to benefit from a number of promising tailwinds going forward, despite a challenging year in 2020.
Last year, the Lloyd’s market reported a combined ratio of 110.3%, largely driven by the adverse impact of the COVID-19 pandemic, which caused some £3.4 billion of losses for the market.
But excluding the impact of COVID-19, Lloyd’s combined ratio improved to 97.0%, from 102.1%, which Jefferies says reflects the benefits of both raising rates and portfolio pruning.
Also during 2020, the Lloyd’s market collectively raised prices by 10.8%, while simultaneously remaining disciplined and cutting back volumes by 12.0% to improve margins.
Though this limits the upside potential to revenue, analysts note that the margin benefits are already evident, with attritional losses down 5.4%pts, confirming that the market’s momentum has likely turned.
“Reassuringly, the Lloyd’s market is demonstrating remarkable underwriting discipline, raising prices and cutting volume,” analysts at Jefferies stated. “We expect all of these trends to accelerate in 2021, with rates rising ever further, volumes still likely to fall and potentially some syndicates completely withdrawing.”
Looking forward, 2021 is set to be the fifth consecutive year of rate increases for the Lloyd’s market, and this momentum will likely continue forward into 2022, given the magnitude of losses and the prospect of low investment yields.
However, Jefferies also pointed out that, when excluding the £3.4 billion of COVID losses from last years £5.5 billion of major claims losses, Lloyd’s market losses were actually in line with the 15-year average of £2.1 billion.
In fact, the ongoing period of elevated and insured catastrophe losses is the most costly run of losses in decades coupled with Covid-19 losses, and marks the first time this century that the market has recorded four consecutive annual underwriting losses in a row.
