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Fitch: London Market Insurance Outlook Negative Despite Pricing
November 27, 2017 / 10:43 AM / 15 days ago

Fitch: London Market Insurance Outlook Negative Despite Pricing

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: Fitch 2018 Outlook: London Market Insurance here LONDON, November 27 (Fitch) Improved pricing for London Market insurers in 2018 may not be enough to relieve the pressure on their underwriting results from high expenses and lower reserve releases, Fitch Ratings says. We are therefore maintaining our negative sector outlook for the industry. We expect to see a significant increase in pricing for loss-affected insurance lines, particularly US property and catastrophe reinsurance, following three major hurricanes and two earthquakes in Mexico. Insured loss estimates for these events are as high as USD100 billion and we therefore expect them to result in capital losses for some firms. Given their desire to rebuild capital buffers, insurers will also attempt to increase pricing on non-loss affected insurance lines. But the strong level of capital available in the market and intense competition mean any rate increases in these insurance lines could be short-lived. This expectation is supported by looking at how pricing changed following the last two standout catastrophe loss years. Pricing for the whole market rose sharply following 2005's hurricane-related losses, but even bigger losses in 2011 had a much smaller impact on overall pricing because of the market's stronger capital position. Expense ratios have also been rising over the past several years due to rising acquisition costs, which are predominantly made up of the commissions paid to brokers, and increased administration expenses due to higher regulatory costs and IT infrastructure spending. The London Market is prioritising modernisation and efficiency, but it will take time for any meaningful cost reductions to feed through. In the meantime, these higher expenses will keep underwriting results under pressure. Many insurers also reported lower reserve releases in 1H17 than in 1H16 and we expect reserve releases will contribute less to underwriting results than in recent years. Taken together, these factors mean that catastrophe losses in 2018 in line with the long-term average would result in a combined ratio for the London Market of around 100%, meaning that the insurers would be barely breaking even on an underwriting basis. For more details on our expectations for the sector, see the report "Fitch 2018 Outlook: London Market Insurance" published today and available at www.fitchratings.com or by clicking the link above. Contact: Ekaterina Ishchenko Associate Director Insurance +44 20 3530 1532 Fitch Ratings Limited 30 North Colonnade London E14 5GN Graham Coutts Director Insurance +44 20 3530 1654 Simon Kennedy Senior Analystjavascript:togglePRTab(6); confirmation(); Fitch Wire +44 20 3530 1387 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: athos.larkou@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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