Last year proved turbulent for Lloyd’s reinsurance segment which saw losses as combined ratios in all three lines of property, casualty and specialty went over 100%, despite Lloyd’s attempts to realise combined ratios below 100% with reserve releases and close monitoring of its reinsurance exposures, according to A.M. Best’s latest Lloyd’s report.
Lloyd’s reinsurance classes are property; with property catastrophe excess of loss the largest segment, casualty; primarily non-marine excess of loss and U.S. workers’ compensation – and specialty reinsurance; marine, energy, and aviation reinsurance.
The property reinsurance segment’s accident-year combined ratio rose as it felt the impact of Hurricane Matthew and Fort McMurray wildfires in Canada, as well as aggregated losses from smaller catastrophes and risks.
In 2016, the proportion of reinsurance ceded by Lloyd’s increased slightly to 23%, A.M. Best said this was in equal proportion to reinsurance placed within Lloyd’s.
The Performance Management Directorate’s ongoing focus on syndicate business plans and their reinsurance dependence is expected to support continued stability in this ratio in 2017, A.M. Best said.
Lloyd’s closely monitors its managing agents’ reinsurance exposure in; “total outstanding reinsurance recoverables, counterparty concentration risk” as well as the purchasing trends of individual syndicates.
In addition, its reinsurance panel remains well-diversified with the 10 largest external reinsurance groups accounting for 43% of total reinsurance recoverables in 2016 (2015: 45%), said A.M. Best.
In 2016 the firm’s total reinsurance premiums written increased by 9.5% to £9.4 billion, however, premium rates continued to soften as terms and conditions widened in the soft market.
Property reinsurance which accounts for over half the segment, reported an 8.5% increase in GWP, though A.M. Best explained this was largely due to exchange rate movements.
“Lloyd’s maintains an excellent business profile. However, an increasingly difficult operating environment poses challenges to its competitive position.
“In particular, 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,” explained A.M. Best.
Despite these market challenges, the rating agency believes one of the biggest obstacles ahead of Lloyd’s continued success is Brexit and how it manages business throughout the transition period; “Depending on the outcome of the exit negotiations, leaving the EU could restrict the access of Lloyd’s to European business. Since the referendum, Lloyd’s has devoted significant resources to assessing the options for it to continue to access EU markets.
“Within days of Article 50 being invoked, Lloyd’s announced that it would establish a European insurance company in Brussels that would be ready to write business from 1 January 2019, subject to regulatory approval.”
