Fitch revises London Market outlook to stable

Fitch Ratings has updated its outlook for the London Market to stable from negative, reflecting an improvement of the overall pricing environment expected to enable better underwriting results.

This is according to director, EMEA insurance at Fitch Ratings, Ekaterina Ishchenko who presented the agency’s sector outlook for the UK non-life insurance market for 2020, during the Fitch Ratings’ Insurance Roadshow 2020 event.

“Our expectation is that the underwriting results will show signs of improvements. This will mainly come from attritional loss ratios,” she said.

Yet, one of the main challenges for the London Market will remain high expense ratios. “The increase of these ratios appears to have stopped from H1 2019, but overall they remain very high”.

She detailed the ratings agency’s predictions about the ratios remaining just below 45% on average, in an analysis for a selected group on London Market insurers, including Brit, Beazley, Hiscox, Lancashire.

Alongside high ratios, Ishchenko also highlighted risks in casualty reserving, as Fitch forecasts limited support from reserve releases.

Lloyd's profitability review

“We have also found that Lloyd’s profitability review played a key role in the changing of the dynamics in the market.

“There is a focus on reducing attritional loss ratios and expenses, focus on underperforming classes of business and conversely, growing the best performers. The review is now part of the annual planning process and this will play a role in supporting pricing as well as underwriting discipline.”

The profitability review at Lloyd’s was initiated in H1 2018, with the aim to improve underwriting results. All Lloyd’s syndicates were asked to identify the 10% worst performing portfolios and to provide remediation plans.

Ishchenko also noted that “interesting projects” were taking place in the market, mentioning the risk exchange scheme, within the Future at Lloyd’s initiative.

Lloyd’s Blueprint One presents the risk exchange as “a Lloyd’s digital exchange that connects to existing systems or provides a new user interface and enables instant search, quote, bind and issue for less complex risks, improving the speed of placement and customer experience.”

She added: “It will take three years to implement so we do not expect it to have an immediate impact. Yet, this is clearly a positive trend.”

Home and motor outlook negative

Separately, Ishchenko restated that the sector outlook for the UK home and motor insurance markets was negative, reflecting high claims inflation and a weak pricing environment. The outlook was initially published by Fitch Ratings in November.

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