Lloyd's reinsurance business surges ahead of US and Bermudian markets

Lloyd’s reinsurance business surges ahead of US and Bermudian markets | Insurance Business New Zealand

Reinsurance

Lloyd’s reinsurance business surges ahead of US and Bermudian markets

Market thrives through strong risk-adjusted pricing conditions

Reinsurance

By
Kenneth Araullo

Lloyd’s reinsurance business has seen significant growth in recent years, with a five-year compound annual growth rate (CAGR) of 9%, according to a new report from AM Best – placing it ahead of several other markets.

In 2023, the market’s reinsurance premiums increased by 12.8%, driven by substantial growth in property and specialty lines, benefiting from strong risk-adjusted rate changes. Casualty reinsurance emerged as the fastest-growing line, with a five-year CAGR of 15%.

As per the report, reinsurance remains Lloyd’s largest business segment, accounting for 33% of its gross written premium (GWP) in 2023. While Lloyd’s underwriting performance is often subject to volatility due to the nature of the risks underwritten, the report noted that the market has continued to outperform the US and Bermudian reinsurance markets in terms of loss experience.

Tim Prince, director of analytics at AM Best, noted that after significant reinsurance rate strengthening in 2023, certain lines are expected to experience moderating pressures in 2024. Despite this, overall rate adequacy is expected to remain sound.

Prince added that while underwriting results for 2024 are likely to stay strong, they will largely depend on the impact of natural catastrophe claims throughout the remainder of the year. With interest rates expected to remain elevated, Lloyd’s aims for another year of robust overall earnings.

Lloyd’s syndicates follow a stringent capital-setting regime across the market, employing a risk-based approach to determine member-level capital requirements, along with a 35% capital uplift.

Additionally, members are required to replenish their Funds at Lloyd’s (FAL) following losses through the “Coming into Line” process, which helps maintain risk-adjusted capitalisation and mitigates volatility. This process ensures that any capital depleted due to catastrophic losses is swiftly restored, making Lloyd’s capitalisation less volatile compared to its peers.

From 2017 to 2020, Lloyd’s reinsurance business faced challenges, with underwriting losses reported each year, resulting in an accumulated underwriting loss of close to £3 billion over the four-year period. However, the market has since implemented remedial measures, supported by syndicate efforts and performance oversight by the Corporation of Lloyd’s.

Improving market conditions have also contributed to a marked turnaround in performance. The reinsurance segment reported a combined ratio of 80% in 2023, a notable improvement from 117% in 2017.

Both the property and casualty reinsurance segments have reported progressively better combined ratios since 2020. In 2023, property reinsurance achieved a combined ratio of 73%, driven by rate hardening. Similarly, casualty and specialty reinsurance reported favourable combined ratios of 90% and 84%, respectively, aided by adequate rate increases in these segments.

The overall Lloyd’s market posted a combined ratio of 84.0% in 2023, outperforming the US and Bermudian reinsurance markets, which reported a combined ratio of 85.1%. The report noted, however, that comparisons between Lloyd’s and large European reinsurers, as well as US and Bermudian markets, are complicated by differing accounting standards.

Most European reinsurers adopted IFRS-17 in 2023, leading to discounted combined ratios that are not directly comparable with Lloyd’s results, which are reported on a UK GAAP basis. In the US and Bermudian reinsurance markets, the majority report under US GAAP.

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