High costs weigh on London Market outlook

The high cost of doing business, due to high acquisition and administration, will continue pressuring underwriting results in the London insurance market in 2018, prompting Fitch Ratings to keep a negative sector outlook for the industry.

The trend of rising expense ratios since 2012 was halted in 2017, staying broadly flat year-on-year for most London market insurers, but expense ratios remain high, at above 40 percent, Fitch noted.

The majority of London market insurers reported underwriting losses in 2017, driven by their exposure to significant catastrophe losses in 2017 due to three major hurricanes Harvey, Irma and Maria as well as earthquakes in Mexico and wildfires in California.

The exceptions to this were Beazley and Hiscox, whose combined ratios were just below 100 percent, due to a greater proportion of non-catastrophe-exposed specialty lines of business, offsetting catastrophe losses, Fitch noted.

Following the catastrophe events of 2017, premium rates have risen on short-tail loss-affected lines. Hiscox reported that its catastrophe reinsurance pricing rose on average 9 percent, and Beazley said that its property insurance and reinsurance pricing increased by 6 percent at the January renewal season. In the wider market, outside of catastrophe-exposed lines, pricing was largely flat. Lloyd’s reported risk-adjusted price rises at January renewals of 3 percent, which still leaves risk-adjusted rates well below historical highs, Fitch noted.

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