1 June 2015 Insurance

London insurers post solid results despite competition

London market insurers entered 2015 with solid balance sheets despite having to contend with difficult trading conditions.

This is according to rating agency AM Best in its latest report on the market, which found that London market insurers reported a pre-tax profit of £3.2 billion in 2014, a marginal decrease from 2013.

The combined ratio deteriorated two points to 87 percent, while the net investment return (including gains) rose year over year to 2 percent from 1.6 percent.

However, final results for 2015 will depend primarily on the frequency and severity of large losses, as well as the level of prior-year reserve releases.

The rating agency said that strong underwriting discipline and prudent management of capital and aggregate exposures will determine which companies are able to absorb any catastrophe losses and maintain capital strength.

“Premium rates are under pressure and a return to a more normal level of catastrophe losses could push this year’s technical results into the red,” said Catherine Thomas, director of analytics at AM Best. “With interest rates set to remain at historically low levels, investment income will provide limited earnings support.”

The rating agency added that the competitive position of London is under threat from the growth of local and regional re/insurance hubs. But AM Best is confident that the Lloyd’s market remains attractive to investors.

Yvette Essen, director of research and communications of EMEA at AM Best, added: “M&A is seen as the most straightforward way to access the Lloyd’s market, as its capital-efficient structure and international licences continue to attract trade buyers and private equity.

“However, the number of London-centric companies has shrunk as a result of M&A, and the listed London market entities that remain tend to trade at a high price to net tangible assets, reducing their attractiveness as takeover targets.”

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