London Market running on strongest fundamentals in memory on rate surge

London Market insurers are enjoying the best market conditions in recent memory and have secured the rate gains needed to keep combined ratios on a downward trend throughout 2023 from what analysts consider an “already attractive level” in 2022, analysts at the Berenberg equity brokerage told investment clients in a note.

“We struggle to identify a recent period when the fundamentals of the London Market sub-sector have been so strong,” analysts told institutional investors with instructions to buy into recent share price underperformance.

Berenberg likes “strong rate momentum” in the year to date, sufficient to ensure further improvement in combined ratios. Outside of the much-maligned D&O. specialty line pricing “continues to remain strong” despite the length of the rally that dates to 2019.

Nowhere is that rate gain bringing more risk-adjusted gains than property reinsurance as carriers compound rate gain with a willingness to unwind a prior period of being “relatively underweight.”

“Moreover, significant strides have been made in reducing some of the hidden and not easily quantifiable risks,” Berenberg says to sweeten the margin feel of the growth segment. Berenberg likes new exclusions on cyber accumulation risks, tightened wordings that cut litigation risks, improved specialty pricing following unbundling of covers, Berenberg says.

Berenberg has an opportunistic buy recommendation on key names like Beazley and Lancashire as the story on strong fundamentals meshes well with recent underperformance, both down double digit in 2023 versus the European insurance index SXIP which is showing a fractional gain. Conduit Re could also be ripe for an investor foray, despite the YTD gains, Berenberg says.

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