S&P Global Ratings’ latest Lloyd’s Market 2022 Review states a belief that the market will post a robust underwriting performance between 2022 and 2024 as rates harden over many lines after turning in 2021 its first underwriting profit in five years.
The report, subtitled Let the Good Times Roll?, says that this turnaround results from the ‘management’s remedial actions in recent years’. This actions, the report said, have resulted in some of the largest syndicates in 2017 materially shrinking as they recorded significant underwriting losses.
It wrote: “We expect that the Lloyd’s market will continue to record solid underwriting profits over the next two years, after turning its first underwriting profit since 2016 last year. While 2022 got off to a difficult start with the Russia-Ukraine war and a higher-than-average number of natural catastrophes for the first six months, we expect that with a normalized loading for catastrophes for the remainder of the year the market should return another sub 95% combined (profits and losses) ratio.”
It added: “Since 2017, [the corporation’s performance management division] has focused on the market’s worst-performing syndicates and business lines, resulting in some syndicates leaving the market–either of their own volition or at Lloyd’s behest–or reducing their exposure. We believe these actions along with rate hardening in the specialty and reinsurance markets have gradually improved Lloyd’s underlying performance from 2018, leading to a 2021 underwriting profit (93.5% combined ratio), despite higher-than-average catastrophe losses. As such, we believe the market is now in a much stronger position to take advantage of the most buoyant market Lloyd’s has seen in over a decade.”
According to S&P Global Ratings, the Lloyd’s market posted muted growth over 2017-2021, with the top line increasing only 14%. The majority of this was generated in 2021, given that premiums largely flatlined before that. However, it said it believed that the significant volume reduction and material rate increases have left Lloyd’s with a more profitable book of business. Its expectation is that the market will continue to see significant growth in 2022-2023, largely driven by improved rates, but with some exposure growth too.
The firm also said that while the largest 20 syndicates have remained relatively stable over the past five years, their ranking by size has changed significantly.
It wrote: “In 2017, Axa XL (formerly Catlin) 2003 and MS Amlin 2001 were the two largest syndicates, and the only ones writing over £2bn of gross written premiums. By 2021, they had slipped to No. 8 and No. 9, respectively. Meanwhile, Beazley 2623, the fifth-largest syndicate in 2017, is now the only one with over £2bn of gross written premiums. There has also been a significant bifurcation between syndicates in their growth stories.”
It added: “In our previous analysis on the Lloyd’s market, we have noted that many of the syndicates that left Lloyd’s market tended to be smaller and more recently established. However, our most recent analysis of the top-20 syndicates demonstrates larger, established players have also been affected by PMD’s work. Of the top-20 syndicates, five have shrunk in terms of net premiums over 2017-2021. Two of the five were once the largest syndicates in the market. Premium reductions were most noticeable over 2019-2020.”