A recent review of anticipated 2017 market conditions has revealed a declining pace of rate reductions and decreasing underwriting confidence in the London Market.
In a statement, PwC said it anticipates lower premium rate reductions in 2017 as compared to the actual rate reductions in 2016, which in turn were lower than the 2015 rate reductions. These, PwC said, indicate increasing resistance from London Market insurers to falling prices.
The multinational professional services network said that for London Market players to retain profitability in 2017, they need to focus on planned re-underwriting in their strategies.
On average, London Market insurers have a net combined ratio of 97% for 2017, including a 4% loss in profitability due to reinsurance. Almost one in three insurers are dependent on investment-generated profits, but, given the investment environment, PwC said the profits will not amount to much.
For energy and aviation lines, 6% to 7% average risk adjusted premium rate reductions are expected in the 2017 renewals.
The 2017 outlook for offshore property risks of energy operators is particularly bleak, said PwC, as highlighted by anticipated market average risk adjusted rate reductions of 8%. These classes are not expected to make gross underwriting profits in 2017.
The aviation classes, meanwhile, have also seen the 2017 outlook for airport liabilities deteriorate, with an anticipated market average risk adjusted rate reduction of 9% with no gross underwriting profits in 2017.
The sector that appears to be the most resilient against rate reductions is accident and health, with an anticipated market average rate reduction of 1% in 2017. Also receiving a more positive outlook for 2017 is cyber data and privacy breach insurance, where many insurers are assuming sub-90% gross combined ratios in 2017.
PwC said its study also highlights a continuing shift towards binder business at the expense of open market risks. The proportion of binder business is expected to increase from c. 40% in 2016 to 47% in 2017 plans.
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