A majority of London Market insurers are reported by Fitch Ratings to have fallen to either a loss or a very slight profit in 2020, as pandemic-related costs offset most underwriting and investment profits.
Despite investment returns having recovered well in the second half of 2020, Fitch states that returns were not sufficient to compensate for underwriting losses.
Additionally, pandemic losses related to event cancellations and business interruption policies have been noted by Fitch analysts as having pushed combined ratios well over 100% last year.
Fitch does expect pandemic-related losses to reduce in 2021, however, given the conclusion of the FCA BI test case and a smaller exposure to BI and event-cancellation claims through policy language adjustments.
However, analysts highlight the unknown impact covid-19 has had on third-party claims, and expects these to start developing in 2021 and 2022 with a potential to negatively affect the profitability of the market.
On rate acceleration, Fitch highlights how the double-digit rises seen across many insurer reflected the magnitude of pandemic-related losses and the ultra-low investment returns, which lead to increased focus on underwriting profitability.
Despite increased capital and competition, Fitch analysts maintain that 2021 pricing conditions will be favourable, supported by the focus on improving underwriting performance in the Lloyd’s market.