Pricing is beginning to show signs of turning for the Lloyd’s of London market, bringing the promise of a margins recovery after January renewals were up in total by 5-7% year-on-year, with further increases forecast in U.S. loss affected business at mid-year renewals, according to RBC Capital Markets.
Lloyd’s experienced over $100 billion in catastrophe losses in 2017 which led to the market in aggregate producing its worst return on capital since 2001.
RBC analysts believe the scale of losses in direct and facultative classes help to explain why results were so bad in 2017, as this class of business is highly relevant for Lloyd’s players.
However, pricing in these classes have since increased at double-digit rates and loss affected areas are also showing signs of price increases with more rate growth forecast for mid-year renewals.
Other classes of business are at least showing signs of stabilisation, and this should offer Lloyd’s companies a platform for top line growth in the coming year.
In addition to this upswing in primary lines, RBC Capital Markets highlighted that U.S. property reinsurance prices and direct property business, which are a key staple for the Lloyd’s market, have also been rising faster.
In recent years falling prices in both primary and reinsurance lines had severely impacted Lloyd’s market profitability.
In 2017 the market’s combined ratio was at 114%, a worse result than the competitor group’s 107%, according to RBC, and excluding the impact of reserve releases last year, all lines of business lost money on an underwriting basis.
The 2017 results for the Lloyd’s market were particularly bad due to the pressure put on earnings from lower prices in recent years plus higher catastrophe losses.
However, prior to 2017, Lloyd’s had been able to achieve a better combined ratio than its primary competitor group and despite a sense of disappointment at the rate increases so far this year, stabilisation in most lines of business plus some increases is a positive in RBC’s view and will lead to an improved combined ratio in 2018-19 for the Lloyd’s market.
