London market underwriting under pressure: Fitch

London market insurers’ underwriting earnings will probably remain “subdued” this year, according to a report issued Tuesday by Fitch Ratings Ltd.

A “difficult pricing environment, high expense ratios and limited impact from prior year reserve releases” will keep London insurers’ profitability under pressure, according to Fitch’s London Market Insurance—Autumn Dashboard report. The report noted there have also been a few catastrophe events in the third quarter of this year, including Hurricane Florence, typhoons Jebi, Mangkhut and Trami in Asia and the earthquake and tsunami in Indonesia. Catastrophe losses in the third quarter experienced by London market insurers” are likely to remain within annual budgets allocated to large losses,” said the report. “However, further large losses in (the fourth quarter of 2018) could put more pressure on earnings,” the report cautioned.

The report pointed out that in an attempt to improve underwriting results, Lloyd’s of London initiated a marketwide profitability review in the first quarter of the year, “asking syndicates to review the worst-performing 10% of their portfolios and to provide remediation plans. Given that this is a multiyear project, we expect any meaningful improvements in profitability to materialize not earlier than 2019.”

The report also noted that capitalization in the London market remains very strong, with excess capacity in the market fueling competition.” As a result, we expect pricing to be broadly flat in the absence of significant losses” in the final quarter of the year, said Fitch.

In addition, Fitch said that London market insurers with operations in the EU have set up new subsidiaries in the EEA ready to write business in advance of Brexit, mitigating the impact of the loss of passporting rights into the EU. “However, the legal ability to continue paying claims on existing policies written by a UK insurer in respect of EU business under passporting arrangements after a no-deal Brexit is unclear,” said Fitch.