With COIVD-19 having already caused sizeable losses and with the North Atlantic hurricane season still a factor, S&P Global Ratings considers it unlikely that Lloyd’s of London will turn an underwriting profit in 2020.
S&P notes how despite an overall profit in 2019, its first since 2016, Lloyd’s underwriting remained unprofitable, with a headline combined ratio of 102%.
However, with the slow but steady underlying combined ratio improvements seen since 2017, and as rates continue to harden and Lloyd’s cracks down on underperforming syndicates, S&P sees a market showing signs of turning and thinks overall improvement at Lloyd’s is likely to continue in 2020-2021.
Although experiencing three consecutive years of combined ratios over 100%, S&P says the underlying performance, excluding the impact of reserve releases and large losses and adding an average 9% catastrophe charge, shows a different picture.
Performance by this measure has improved, very gradually, every year since 2017, a trend expected to continue into 2021.
Although it has taken some time, S&P considers Lloyd’s as being steered in the right direction on underwriting performance.
At the syndicate level, a high level of natural catastrophes since 2015 has hit those specialising in catastrophe-exposed short-tail lines; and special-purpose syndicates, which often reinsure the property catastrophe risk of their sponsor syndicates.
S&P analysis shows that the maturity of a syndicate is often the best determinant of operating success and size is less important.
Given that Lloyd’s has continued to crack down on underperformance, S&P also expects more syndicates to close in 2020.
While the significant number of catastrophes in recent years have made it more difficult to achieve technical profitability through underwriting, S&P believes Lloyd’s Performance Management Directorate has identified serial underperformers among syndicates that would have dragged down the market’s performance regardless.
