Consecutive periods of above-average large losses are set to cause a positive reaction in pricing across a range of UK specialty classes in 2019, according to analysts at J.P. Morgan.
The firm noted that 2018 saw a higher incidence of man-made losses, putting classes like Marine under additional pressure, while pricing in many areas has also been recognised as inadequate at the industry level.
For example, the Lloyd’s Decile 10 program contains a number of provisions to help restore underlying profitability to the Lloyd’s market at the expense of premium growth, J.P. Morgan said.
Analysts added that rates in the UK property catastrophe markets are likely to be impacted by the continued loss-creep from the 2017 hurricanes, as well as the high levels of catastrophe activity in 2018, which included Hurricanes Florence and Michael, Typhoons Jebi and Trami, and the California wildfires.
J.P. Morgan also believes that insurance-linked securities (ILS) managers will in some cases struggle to raise the same levels of capacity at the 2019 renewals that was provided this year, adding further pressure on upward pricing.
The heightened loss activity over the last two years leaves the UK market fragile, analysts added, with another significant loss year likely to produce an even greater reaction in pricing.
J.P. Morgan generally believes that the UK market is driven by supply/demand rather than loss experience, but warned that another large loss year could result in more destroyed and trapped capital for ILS managers, and an even greater need to raise funds.
However, for Lloyd’s insurers this may form a positive backdrop, as they should be able to benefit from improved pricing and terms in both reinsurance and areas of specialty.
Analysts noted that some of this benefit may be eroded if the cost of their own reinsurance increases, but maintained that an improvement in pricing was positive overall.