Rates drive change in AM Best’s London market outlook to positive

Rating agency AM Best says strong pricing is driving underwriting profitability and behind its positive outlook on the London insurance market, which has been revised upwards after standing at stable for several years.

The agency highlights a strong pricing environment across most line of business, with London market insurers in a good position to benefit from growth opportunities in US excess and surplus lines, which AM Best assigned a positive outlook in November 2023.

“Underwriting discipline and rate adequacy remained strong throughout 2023 and into 2024, which is likely to support continued strong underlying underwriting results,” AM Best says.

This is despite rate softening in some areas, particularly professional lines, adds the ratings agency.

It says that insurers’ bottom lines will be bolstered by investment yields, which are expected to gain from an improved interest rate environment and relatively high returns on fixed income portfolios for at least the next 12 months.

On the other hand, AM Best says it recognises concerns over social and economic inflation for certain business lines as well as changing climate trends and the potential for unmodelled risks, which in recent times have included Covid-19 and war in Ukraine. AM Best says the London market has taken on increased amounts of cyber risk, bringing with it exposure to accumulation risk from a systemic event.

“Uncertainty regarding the severity and increasing frequency of major perils, together with a lack of experience of systemic cyber losses, present challenges to exposure management,” it says.