Cost of cover will continue to rise at Lloyd’s: S&P

Risk managers that use the Lloyd’s market for specialty coverage can expect continued pressure from insurers to raise prices throughout 2019 as the market maintains its hard-line approach, with loss-hit lines most affected, according to credit ratings agency Standard & Poor’s (S&P). S&P Global Ratings has revised its outlook on Lloyd’s, the Society of Lloyd's and its core subsidiaries to stable from negative. It said the actions that Lloyd’s management took in late 2018 to remediate some of its worst-performing business should enable the market to maintain capital levels. S&P said that Lloyd's' capital adequacy is likely to strengthen further in 2019 as the market's net premium written shrinks and it continues to exercise stronger control over exposure to catastrophe risk. S&P said the stable outlook signifies an expected focus on underwriting discipline to improve operating performance in 2019 through to 2021. “Under our base-case scenario, we assume that the market will see a rise in premium rates in 2019, particularly in loss-affected lines,” noted S&P. “We revised the outlook because, under its new leadership team, the London-based Lloyd's insurance market has taken the necessary steps to improve its overall underwriting performance. In its annual 'coming into line' process (where Lloyd's reviews and approves syndicates' business plans) in late 2018, Lloyd's' performance management division took very public action to remediate some of the worst-performing business in the market,” explained S&P. “Management's focus on the worst-performing 10% of business at Lloyd's (known as 'decile ten'), demonstrates that it has started to deal with Lloyd's' worsening underlying performance. We expect this process may take some time – the extent of the remediation may not become clear until year-end 2020 – but we anticipate that Lloyd's will continue to manage its business tightly to ensure that underwriting performance improves,” added the credit ratings agency. Lloyd's recorded a loss of £2bn in 2017, but has since “steadily rebuilt” its capital position, noted S&P. “This improvement has been achieved – despite another £1bn loss in 2018 – through the recapitalisation of syndicates, a reduction in the use of letters of credit as part of the market's capital, and improved control over the market's catastrophe risk appetite. Under the Solvency II regulations, the use of letters of credit is restricted; we therefore also restrict its use in our capital model,” explained S&P. Rising insurance rates should help to improve Lloyd's' underlying earnings in 2019 to 2020, according to the credit ratings agency. “The stable outlook signifies that we expect management to continue to focus on Lloyd's' underwriting performance and to address its overall cost structure, which has hindered the market over the years. We also expect that the market will continue to hold capital at levels at least in excess of our AA level,” concluded S&P.

Cost of cover will continue to rise at Lloyd’s: S&P

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