London's ratings firm despite market – Fitch - FREE

London's ratings firm despite market – Fitch - FREE

Fitch outlined “negative fundamentals” but said record capital will keep ratings safe, in its “London market insurance dashboard – 2016 outlook” report.

Continued soft market pricing means the rating agency expects the London market’s attritional loss ratio to deteriorate from 52% in 2014 to 54% in 2016.

“Fitch expects the weak trading environment to continue but there have been recent signs that the speed of rate decreases may be slowing and there have been small rate increases in some classes, particularly on specialty lines,” said Fitch Ratings.

“In reinsurance classes, which accounted for 34% of premium in 2014, we expect casualty rates to fall further in 2016 as reinsurers shift capacity from property-catastrophe lines, where profit margins are perceived to have narrowed,” added the dashboard report.

Despite combined ratios creeping upwards year-on-year (see top chart), capitalisation in the London market “is at a record high”, noted Fitch (see bottom chart).

The rating agency credited the low level of catastrophic events, particularly US windstorms in recent years, with preventing the erosion of London market re/insurers’ capital strength.

Fitch thinks London market firms’ capital strength means their ratings can weather a “sizeable” insured cat event, if it does happen in 2016.

“Despite the pricing pressures, we expect profit margins in most London-market lines to remain within the bounds of current ratings. This reflects our expectation that most London market insurers’ balance sheets would be able to withstand a sizeable catastrophic loss occurring within the next 12-18 months.”

The rating agency expected soft market pricing pressure to continue in 2016.

“In particular, we do not believe that a price floor has been reached in reinsurance and expect further declines in pricing adequacy. Other major non-catastrophe lines, such as casualty are also expected to see further price falls as more re/insurers move into these classes of business for diversification,” said the report.

Fitch also said it expects mergers and acquisitions to continue unabated as a “driving factor in 2016”, largely driven by Asian investment in London’s insurance market, and market players wanting to upscale, diversify and save on operating costs.

The report singled out cyber insurance as becoming important for the market.

“Fitch believes that the London market will play a key role in the development of the cyber insurance market in Europe. However, cyber-attacks also have the potential to cause significant losses due to substantial aggregation risk and their increasing sophistication,” noted the rater.


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