Lloyd’s continues to outperform US & Bermudian peers, reinsurance volatility remains: AM Best

The Lloyd’s market continues to outperform US and Bermudian reinsurers on loss experience, however underwriting performance remains subject to volatility due to its exposure to catastrophe risks and long-tail lines of business, according to a new report from AM Best.

AM Best’s report, which was published at the start of the annual Rendez-Vous de Septembre in Monte Carlo, highlighted that the Lloyd’s market wrote £17.3 billion of inwards reinsurance business in 2023, representing a 12.8% increase from the previous year.

From what we understand, property made up around 50% of the reinsurance business written, while casualty made up 30%, and specialty made up 20%, respectively.

Moreover, the agency noted that reinsurance business at Lloyd’s has grown strongly in recent years, with a five-year compound average growth rate of 9%.

In fact, casualty reinsurance has been the fastest growing line in Lloyd’s reinsurance business over the past five years, with a compound annual growth rate of 15%.

Furthermore, AM Best explained that Lloyd’s reinsurance business performed poorly between 2017 and 2020, with underwriting losses reported each year and an accumulated underwriting loss approaching £3.0 billion during
the four-year period.

However, remedial work undertaken by syndicates, combined with close performance oversight by the Corporation, as well as improving market conditions, have helped change the direction, with the reinsurance segment reporting a combined ratio of 80% for 2023, a significant improvement 2017’s 117%.

As well as this, the property and casualty reinsurance segments have seen improved combined ratios each year since 2020. For property reinsurance, rate hardening helped drive a robust combined ratio of 73% in 2023.

Good rate adequacy across casualty and specialty reinsurance also heavily contributed to Lloyd’s reporting favourable combined ratios of 90% and 84%, respectively, for these segments in 2023.

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

AM Best also explained that development of prior year specialty and casualty reinsurance reserves has been more volatile, with years of strengthening and releases seen between 2019 and 2023 for both segments.

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

AM Best noted however, that Lloyd’s underwriting performance is subject to volatility due to the nature of business underwritten.

It’s important to highlight, that 2023 saw benign natural catastrophe claims for the market, with major claims accounting for only 3.5% of the overall combined ratio (including primary and reinsurance business), in comparison to 12.7% in 2022, which was impacted by hurricane’s Ian and Fiona and Australian floods.

Tim Prince, director, analytics, AM Best, commented: “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. 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.”

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