Lloyd’s outperformed by Bermuda in 2014

From an underwriting performance perspective, Lloyd’s was outperformed by the US and Bermuda in 2014, although all segments achieved solid underwriting.

This is the finding of AM Best’s latest global reinsurance financial review, which added that the US and Bermuda produced a combined ratio of 87.5 percent, marginally better than Lloyds’ 88.1 percent result in 2014. This may have been driven in part by the recent aviation tragedies around the world.

“On a five-year basis, the US and Bermuda market produced an average combined ratio of 93.1 percent as compared to a 93.6 percent for Lloyd’s and 96.5 percent for European reinsurers,” said the rating agency.

In terms of return on equity (ROE), Lloyd’s was the best performer in 2014, reporting 14.7 percent, compared with 11 percent for the European ‘Big Four’ and 10.6 percent for the US and Bermuda.

However, AM Best warned that market dynamics such as those experienced by the reinsurance sector in 2006, post Hurricanes Katrina, Rita and Wilma and with the financial crisis still a few years away, are not expected to return any time soon.

“Nonetheless, for perspective, think about that the fact that the US and Bermuda market that year reported a combined ratio of 87 percent, which included less than 1 percentage point of favourable loss reserve development but the average ROE that year was an astonishing 19.4 percent, with several companies reporting ROEs in excess of 20 percent,” said the rating agency.

“This provides a senseof the rate on line and investment returns companies were achieving back then. Today, benign catsyears and a heaping pile of favourable reserve development allows the sector to barely scrape out a double digit return.”