Catastrophe losses from the recent US hurricanes and Mexican earthquakes will have a knock-on effect on London market insurers’ prices, according to a new report from Fitch Ratings.
The ratings firm said it expects 2017 earnings of London market insurers to be “significantly reduced from 2016,” due to catastrophe losses, and the combined ratio for the Lloyd’s market likely to be significantly above 100%.
The recent catastrophes on the other side of the Atlantic will lead to price rises on London market insurers’ loss-affected lines, and could also affect wider market pricing trends, Fitch’s report said.
According to estimates from independent catastrophe modelling firm RMS, the total industry insured losses from the three major hurricanes, Harvey, Irma and Maria, could be in the range of $75 billion (£56 billion) to $120 billion (£90 billion).
While there is still “considerable uncertainty” around the size of the losses, some insurers have already announced their preliminary estimates. Lloyd’s of London has said it anticipates net claims from Harvey and Irma to be around $4.5 billion (£3.4 billion), while
Beazley said the impact of the three hurricanes on 2017 earnings would be around $150 million (£113 million), equivalent to around half of 2016 earnings.
Fitch revealed that London market insurers benefited from an “exceptionally low level of catastrophe losses,” during the first half of 2017, which it said masked some loss ratio deterioration due to pricing pressures for some insurers.
Major losses contributed only 1.9% to Lloyd’s of London’s reported combined ratio in the first six months of this year, significantly below the 10-year average of 8.7%.
“We expect underwriting results to remain under pressure, due to rising expense ratios and continued strong market competition,” Fitch said.
Premium rates fell against the first half results, but at a slower rate than in the same period last year.
The biggest rate declines were experienced by large property, energy and terrorism lines, with Beazley reporting an overall rate reduction on renewal business of 9% for energy and 11% for terrorism.
Pricing pressures remained, due to strong competition and overcapacity in the market, leading insurers to shrink their exposures, or exit lines of business where margins are no longer adequate.
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