Reinsurance News

Renewals “bode well” for London Market profitability: Berenberg

14th January 2022 - Author: Matt Sheehan

Analysts at Berenberg believe that the recent January reinsurance renewals “bode well” for continuous improvement in underlying profitability and earnings for the London Market in 2022.

The investment bank considers the performance of the London Market to have been “lacklustre” in 2021.

The drivers of the underperformance were similar to those for reinsurers, with large natural catastrophe losses continuing to weigh on earnings through the year.

In addition, both sectors have faced further challenges in casualty due to ongoing social inflation trends, and in cyber due to the proliferation of ransomware attacks.

However, these trends were exacerbated for firms in the London Market, who tend to have significantly lower operational leverage and less diversification versus large global reinsurers, whereby large losses have led to overall higher volatility in terms of EPS.

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But looking ahead through 2022, Berenberg considers valuations to be supportive for London Market insurers across the board, with upwards rate momentum expected to help accommodate expanding margins, which should in turn help to boost underlying profitability.

Although analysts see rate momentum as becoming increasingly bifurcated between loss-affected versus non- loss-affected lines of business, positive momentum is expected to persist throughout 2022 and thus the London Market to benefit as a result, on the back of the fifth consecutive year of rate increases.

Furthermore, Berenberg anticipates that demand for reinsurance, but also specialist insurance, will remain elevated, and trapped insurance-linked securities capacity will put upwards pressure on demand for products.

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