1 June 2018 Insurance

2017 costliest year on record for UK specialty market: EY

Hurricanes Harvey, Irma and Maria - along with the Californian wildfires - all contributed to the costliest year on record for the UK specialty insurance market in 2017, according to EY’s annual specialty results analysis.

£4.5 billion was paid out in major claims in 2017, up 9.4 percent year-on-year due to significant cat events.

Return on capital (ROC) at Lloyd’s fell from 8.1 percent in 2016 to -7.3 percent in 2017, moving from a £2.1bn profit to £2bn loss.

The analysis also showed a downward trend for ROC, with a 9.3 percent fall even adjusting for major claims.

Although there was a slight increase in investment returns over the course of the year from 2.2 to 2.7 percent - equating to £1.3bn to £1.8bn, there was a great deal of volatility during the period.

Gross premium in 2017 grew but underwriting performance continued to deteriorate, the analysis showed. Gross premium increase 12 percent from £29.9bn to £33.6bn, but underwriting profit dropped from £0.5bn to -£3.4bn, driven by large losses (£4.5bn vs £2bn in 2016) and smaller reserve releases.

Reserve releases were down percentage points in 2017, from 5.1 percent (£1.2bn) of net premium in 2016 to 2.9 percent (£0.7bn) in 2017 - the lowest level since 2006.

All of Lloyd’s classes of businesses reported accident year losses for 2017, and the accident year attritional net loss ratio increased significantly from 53.3 percent in 2016 to 58.9 percent.

While there were ratio deteriorations across property, casualty, marine and energy, there were improvements in motor, reinsurance and aviation.

“2017 was characterised by hurricanes Harvey, Irma and Maria, the Californian wild fires, an earthquake in Mexico, monsoon flooding in Bangladesh and a mudslide in Colombia. Global catastrophe losses were over $130bn,” said Andy Worth, UK head of specialty insurance at EY. “This greatly affected the specialty market which experienced its costliest year on record. While this was of course felt at an overall market level, the level of exposure wasn’t uniform and some individual managing agents were impacted to a much greater extent than others. Our analysis shows that while some of the variance in performance amongst managing agents is due to portfolio mix, the better performers use better risk selection and pricing discipline to out-perform.”

EY suggested that the introduction of the Base-Erosion Anti-Abuse Tax (BEAT), created through the US Tax Cuts and Jobs Act, could have significant market implications for cross-border affiliate reinsurance - especially groups with US and/or Lloyd’s platforms which reinsure to offshore affiliates.

This could impact the UK specialty market and any Lloyd’s member which writes US binder business that is then reinsured from the syndicate or corporate member to an off-shore affiliate.

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