Lloyd’s “unlikely” to turn underwriting profit in 2020

Analysts have suggested that the Lloyd’s market is unlikely to make an underwriting profit in 2020, as syndicates struggle to break even following several years of above-average natural catastrophe losses.

The predictions come from S&P Global Ratings which also said there are signs the market is beginning to improve.

Although the Lloyd’s market managed to report an overall profit in 2019, the first since 2016, its underwriting remained unprofitable, with a headline combined ratio of 102 percent.

Nevertheless, S&P believes there are signs that the market is picking up. The ratings agency said the market’s underlying underwriting performance continues to make headway, with 10 consecutive quarters of re/insurance rate improvement.

“Underlying combined ratios have slowly, but steadily, improved since 2017,” S&P said. 

“As rates continue to harden and Lloyd’s cracks down on underperforming syndicates, the overall improvement is likely to continue in 2020/21. While the supertanker has not reached its cruising speed yet, it seems to be on the right course for now.”

The analysts continued: “At the syndicate level, results over the past five years indicate that the high level of natural catastrophes since 2015 has hit two types of syndicate hardest: those specialising in catastrophe-exposed short-tail lines; and special purpose syndicates, which often reinsure the property catastrophe risk of their sponsor syndicates. 

“Our analysis shows that the maturity of a syndicate is often the best determinant of operating success.”

S&P Global Ratings

“Our analysis shows that the maturity of a syndicate is often the best determinant of operating success—size is less important.”

However, S&P emphasised, the COVID-19 pandemic has already caused considerable losses for the Lloyd’s market, in both underwriting and investment, with the North Atlantic hurricane season still to come.

Lloyd’s has completely overhauled its C-suite and the management team has launched its “Future at Lloyd’s” project, which S&P considers to be “ambitious, with a high degree of execution risk”.

“An organisation as complex as Lloyd’s takes some time to change course, but in our view, if the ‘Future at Lloyd’s’ project is well executed, it will enable Lloyd’s to address its historical underperformance and further strengthen its competitive position,” the ratings agency said.

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