AM Best: Lloyd’s outperforming US and Bermudian peers but reinsurance volatility remains

Lloyd’s continues to outperform US and Bermudian reinsurers on loss experience, although underwriting performance remains subject to volatility owing to the nature of the business written, a new AM Best report has said.

The rating agency’s report, published at the start of the annual Rendez-Vous in Monte Carlo, noted that the Lloyd’s market wrote £17.3bn ($22.7bn) of inwards reinsurance business in 2023, an increase of 12.8 percent on the prior year.

Property made up around 50 percent of the reinsurance business written, with casualty and specialty accounting for 30 percent and 20 percent, respectively.

AM Best noted that reinsurance business at Lloyd’s has grown strongly in recent years, with a five-year compound average growth rate of 9 percent. Casualty reinsurance has been the fastest-growing line, with a compound annual growth rate of 15 percent over the same period.

The report added that Lloyd’s reinsurance business “performed poorly” between 2017 and 2020, producing an accumulated underwriting loss of almost £3.0bn during the four-year period.

Remedial work undertaken by syndicates and tighter performance oversight by the Corporation have moved the dial, with the reinsurance segment reporting a combined ratio of 80 percent for 2023, a significant improvement from the 117 percent recorded in 2017.

AM Best described the impact of prior-year reserve development on Lloyd’s reinsurance combined ratio as “mixed” among business lines. The property reinsurance segment generally benefited from favourable reserve releases, which in 2023 were equivalent to almost 7 percentage points of the segment’s combined ratio.

Development of prior-year specialty and casualty reinsurance reserves has been more volatile, with strengthening and releases between 2019-23 for both segments.

With an overall market combined ratio of 84.0 percent in 2023 and a weighted average loss ratio of 60.3 percent between 2019-23, Lloyd’s continues to outperform the US and Bermudian reinsurance market on loss experience.

However, its underwriting performance is subject to volatility owing to the nature of business underwritten.

2023 saw benign nat cat claims activity for the market, with major claims accounting for just 3.5 percent of the overall combined ratio. This compared to 12.7 points in 2022, which was impacted by Hurricane Ian, Hurricane Fiona and the Australian floods.

“After an exceptional reinsurance rate strengthening in 2023, there are signs of moderating pressures in certain lines in 2024. However, good overall rate adequacy is expected to persist, and the market continues to focus on prudent risk selection,” the report concluded.

“Underwriting results for 2024 are likely to remain strong but will be subject to natural catastrophe claims experience in the remainder of the year. Plus, with interest rates remaining higher for longer, Lloyd’s is looking to achieve another year of strong overall earnings.”