There had been a clear trend of passing more business on to reinsurers as profitability in the Lloyd’s and London markets deteriorated, RBC notes.
But now, the firm anticipates that this trend will reverse to some extent over the next few years as pricing momentum is maintained.
Analysts observed that underwriting profitability has suffered in the London market in 2020, with some Lloyd’s insurers being de-rated as a result.
“Prior to 2017, the Lloyd’s market had been through a long spell of excellent underwriting profitability. But since then, it has been a difficult market for all players whether that has been due to heavy catastrophe losses, social inflation or COVID in 2020,” RBC said.
Pricing has reacted and has accelerated since early 2019 but it is still unclear whether the market is making money on a ‘normalised’ basis, meaning RBC expects to see further price increases in 2021.
Over the medium term, this should lead London market insurers to retain more business, reversing a trend seen in the soft market.
“2020 has probably been the most difficult year for the Lloyd’s space in our view,” RBC continued. “The Lloyd’s market tends to be the insurer of the last resort, and therefore takes on considerable tail risks when compared to the majority of insurers. Pandemic risk has certainly proven to be.”
RBC believes that there is a real push towards increasing pricing to make up for poor recent profitability in the London market, with increases set to continue through 2021.
Source: Reinsurance News
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