Fitch Ratings has pointed to two main factors that impacted the 2018 performance of London market insurers, as the credit rating agency maintains its negative sector outlook.
Catastrophe losses and low investment returns were identified as the biggest culprits, with the likes of Beazley and Hiscox emerging unscathed in terms of underwriting profitability thanks to their specialty lines that are not catastrophe-exposed.
Lloyd’s of London, for instance, reported a combined ratio of 105% for last year, mainly because of large natural catastrophe losses. While industry losses were lower compared to those posted in 2017, Fitch Ratings noted that they remained above the long-term industry average.
It’s also been acknowledged that there is continued pressure on underwriting profitability.
As for investment income, the credit rating agency cited significant deterioration in 2018. This was attributed to poor performances by equity and bond portfolios due to rising interest rates in the US, geopolitical uncertainty, and a slowing global economy.
“As London market insurers have high exposure to US government and corporate bonds, higher rates in the US had a significant negative impact on the value of their fixed-income portfolios,” explained Fitch Ratings.
“Investment income was also hit by the challenging equity market in 4Q18. Brit reported a negative investment result, with other London market insurers reporting small positive returns.”
Meanwhile the credit rating agency added that the cost of doing business in the London market remains high even with the strategic initiatives aimed at improving efficiency.
“We expect the benefits from these projects will take time to materialise and produce meaningful reductions in expense ratios,” it said.