S&P Says Underwriting in Lloyd’s Market Continues to Improve

September 7, 2020

The Lloyd’s market looks unlikely to turn an underwriting profit in 2020 given the pandemic and hurricane season. However, there are signs of improvement, according to analysts at S&P Global Ratings.

S&P notes that the COVID-19 pandemic has already caused the market considerable losses, both underwriting and investment, and the North Atlantic hurricane season is still underway.

The market did manage to report an overall profit in 2019, its first since 2016; however its underwriting remained unprofitable, with a combined (loss and expense) ratio of 102.

S&P analysts do see some signs that the market is beginning to turn. Underlying combined ratios have slowly, but steadily, improved since 2017. As rates continue to harden and Lloyd’s cracks down on underperforming syndicates, the overall improvement is likely to continue in 2020-2021.

“While the supertanker has not reached its cruising speed yet, it seems to be on the right course for now,” the latest S&P report says.

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

S&P said its analysis shows that the “maturity of a syndicate is often the best determinant of operating success-size is less important.”

The report also notes that Lloyd’s recently overhauled its executive suite and the management team has launched an ambitious project to create the “world’s most advanced insurance” marketplace.

“An organization 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,” S&P said.