Competition will put pressure on London market insurers

London market insurers will continue to face pressure on their underwriting margins due to fierce competition, according to a new report by Fitch Ratings.

The London market's fundamental sector outlook for 2016 remains negative; however, the agency's rating outlook remains stable as financial fundamentals are expected to remain robust for Fitch-rated London market insurers.

Fitch believes that a substantial proportion of London market business will continue to experience significant pricing pressures. In particular, the agency does not believe that a price floor has been reached in reinsurance and expects further declines in underwriting margins.

The rating firm also expects other major non-catastrophe lines, such as casualty, to experience further price declines as more re/insurers move into this line of business for diversification.

“The need for smaller re/insurers to increase scale, partly to reduce operating costs and improve diversification has spurred mergers and acquisitions (M&A) activity throughout 2015 and is likely to be a driving factor for further M&A in 2016,” said Fitch.

The firm said it believes that there could be an increased appetite from Asian investors, who are seeking to acquire re/insurance businesses in western markets.

“Market modernisation and improved efficiency of conducting business at Lloyd's, and within the London market as a whole, are important factors in ensuring that business operations become more cost-effective,” said the rating agency.

“The London market continues to be at the forefront of underwriting new specialised risks and Fitch believes that classes of business such as cyber have the ability to grow significantly in 2016.”