Catastrophe losses from recent U.S. hurricanes and Mexican earthquakes will raise London Market insurers’ prices on loss-affected lines, and could affect pricing trends within the wider market, according to Fitch Ratings.
Fitch said in its latest London market report; “We expect 2017 earnings of London market insurers to be significantly reduced from 2016 due to catastrophe losses and the combined ratio for the Lloyd’s market to be significantly above 100%.
“Lloyd’s of London estimated net claims from Harvey and Irma to be around U.S. $4.5 billion, while Beazley said the impact of the three hurricanes on 2017 earnings would be around U.S. $150 million, equivalent to around half of 2016 earnings.”
RMS estimates place total industry insured losses from the three major hurricanes, Harvey, Irma and Maria, in the range of U.S. $75 billion to U.S. $120 billion.
These losses have created a drastic change to the market environment from the first half of 2017, when London insurers benefited from exceptionally low levels of catastrophe losses; at just 1.9% the Lloyd’s of London reported combined ratio was less than one-quarter of the ten-year average of 8.7%.
These low loss levels and earnings being supported by positive prior year reserve development, helped to mask some loss ratio deterioration.
Reserve releases reduced Lloyd’s of London combined ratio by 1.6% in 1H17, although some insurers released higher levels of reserves to more significantly reduce combined ratios.
Lancashire, Hiscox and Beazley’s 1H17 reserve releases reduced their combined ratios by 18%, 10% and 9% respectively.
Premium rates fell this year, Fitch said the biggest declines were experienced by large property, energy, and terrorism lines – Beazley’s overall rates on renewal business reduced by 9% for energy and 11% for terrorism.
Despite the expected pricing upturn on some of Lloyd’s loss affected lines, overall pricing pressures remain strong as expense ratios and market competition increases, leading some insurers to shrink exposures, or exit lines of business with tight margins, said Fitch.
Lloyd’s announced previously that it expects losses from just hurricanes Harvey and Irma to reach $4.5 billion, as it continues to assess the hit to the market from hurricane Maria.
The specialist Lloyd’s of London insurance and reinsurance marketplace has now paid out $738 million in response to the impacts of Hurricanes Harvey, Irma, and Maria.
In light of the losses experienced from recent hurricanes, Global ratings agency, Standard & Poor’s (S&P), has revised its outlook for the Lloyd’s of London marketplace to negative from stable.
However, Lloyd’s A+ financial strength and long-term counterparty credit ratings have been affirmed.