From Artemis, June 29:
Ratings agency Fitch has issued a stark warning to the Lloyd’s of London insurance and reinsurance market, turning its rating outlook to negative, citing the market’s deteriorating underwriting performance and its increasing exposure to catastrophe risk.
Fitch has calculated the Lloyd’s market combined ratio at 98%, which it calls a “significant deterioration from recent performance” and down to both the softened insurance and reinsurance rate environment, higher expenses, as well as a return to more normal levels of catastrophe activity.
Fitch warns that this level of combined ratio needs to come down, saying that “A downgrade may occur if the net combined ratio remains above 97% for a prolonged period.”
Fitch also warns on the Lloyd’s markets exposure to natural catastrophe risk, which it sees as higher than peers. In fact it sees the markets catastrophe exposure as increasing, “In the context of continuing pressure on both risk-adjusted premium rates and expense ratios at Lloyd’s.”
“Fitch believes that exposure to catastrophe risk has increased in recent years despite declining margins on this line of business. However, Fitch believes that Lloyd’s exposure management, through the group’s modelling capabilities and the reinsurance in place, allows the market to mitigate tail risks to some extent,” the rating agency explained today.
But Lloyd’s strong business profile and position as one of just a handful of premier providers of insurance and reinsurance does support the markets ratings, Fitch said.
As long as losses fall with expected limits Fitch believes the capital structure at Lloyd’s can continue to support the markets needs....MORE