Rating agency A.M. Best says that the “increasingly difficult operating environment” poses a challenge to the Lloyd’s of London insurance and reinsurance market’s competitive position.
Despite benefiting from its structure, scale and access to business, the Lloyd’s business model faces pressures like every other insurance and reinsurance entity today.
A.M. Best warns that, “The growth of regional (re)insurance hubs, combined with the comparatively high cost of placing business at Lloyd’s, is reducing the flow of business into the London market.”
But the rating agency also recognises that Lloyd’s has been responding, with the Vision 2025 strategy pushing the market to gain enhanced access to international re/insurance business, the setting up of regional platforms providing it with local knowledge and market access, while the market itself is implementing initiatives to enhance efficiency and reduce costs.
Lloyd’s is not a cheap place to do business and the expense ratio of capacity deployed through the market is typically greater than in corporations, which has served to reduce its ability to compete at times.
Perhaps more of a challenge though is the ongoing softness, which serves to reduce profits from premiums, and the fact that Lloyd’s technical performance has suffered in the last year.
A.M. Best notes that Lloyd’s combined ratio jumped to 97% on the back of larger losses in 2016, up from 89% in 2015.
But the rating agency says that it expects 2017 technical performance will be similar to 2016 even with just an average catastrophe experience for the year, which does not bode well as it means any slight uptick in losses suffered by the market could push it into unprofitability.
It’s a difficult situation and Lloyd’s future profitability remains delicately positioned, meaning that the efforts to streamline the market and its processes must continue apace to counter the lower technical results and softer pricing environment in insurance and reinsurance.
