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The Actuary The magazine of the Institute & Faculty of Actuaries

Third of London’s insurance market set to suffer underwriting losses

Underwriting confidence in the London re/insurance market is declining, with a third expected to lose money next year according to PricewaterhouseCoopers (PwC).

2017 outlook 'fairly bleak' ©iStock
2017 outlook 'fairly bleak' ©iStock

In their latest 2017 London Market outlook, insurance premium rate reductions are expected to fall slower next year than they did in 2016, indicating increasing resistance to lower prices.

With low interest rates, and nearly one in three insurers now reliant on investment returns to generate profits, PwC believe that re-underwriting strategies will be key to profitability for many over the next 12 months.

Their London Market actuarial leader, Jerome Kirk, said: “It’s tough to find positives, although the declining pace of rate reductions is one.

“However, counter this with the low expectations of the market and the outlook is still fairly bleak, something confirmed by Lloyd’s recently. 

“The reliance on re-underwriting makes sense at an individual syndicate level but not at a market level”.

With little expected to come from investments, particular pricing pressure is expected to be placed on energy and aviation classes, with average risk adjusted rate reductions forecast to fall between 6% and 7% in 2017.

Specifically, an average risk adjusted rate of 9% is expected for airport liabilities, with no gross underwriting profits for the market in 2017, and none for the offshore property risks of energy operators either.

“2016 saw some real horror stories in classes such as energy and the outlook for 2017 is not much better,” Kirk continued.

“Making the right decisions at all levels is crucial in such a soft market and market participants should focus on getting the right analyses, analytics and management information to support the business.

“Especially as our analyses at a market level shows not everyone is going to get is right.”

PwC believe that for the fourth year running, the accident and health sector appear to be the most resilient to premium rate reductions, with a market average rate reduction of only 1% anticipated in 2017.

The outlook for cyber data and privacy breach insurance is also positive, while the latest review of market conditions show a continuing shift towards binder business at the expense of open market risks.