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London market insurers’ 2018 results were hit by above-average catastrophe losses and low investment returns, Fitch Ratings Inc. said in a report Monday.
“Underlying profitability was hit by natural catastrophe losses, as reflected in Lloyd’s of London reporting a combined ratio of 105% in 2018 (2017: 114%),” the London-based unit of Fitch said in a statement.
But some London market insurers, such as Beazley PLC and Hiscox Ltd., were still able to report underwriting profits thanks to their non-catastrophe exposed specialty lines, Fitch said in its London Market Insurance Dashboard – 2018 Results report.
Insurers saw a “significant deterioration” in their investment income in 2018, with poor performances by equity and bond portfolios due to “rising interest rates in the U.S., geopolitical uncertainty and a slowing global economy,” the ratings agency said in the report.
London market insurers are highly exposed to U.S. government and corporate bonds, so higher rates in the U.S. had a “significant negative impact” on the value of their fixed-income portfolios, Fitch said.
The challenging equity market in the fourth quarter of 2018 also hit insurers’ investment income, it said.
Brit Ltd. reported a negative investment result with other London market insurers reporting small positive returns, according to Fitch.
Despite moderate price improvement, rate increases remain below what many market participants had hoped for, even given another year of significant catastrophe losses, Fitch said.
The cost of doing business in the London market also remains high, Fitch said, and expense ratios remain “stubbornly high” with most London market insurer reporting an expense ratio of over 40%.
As a result, Fitch said it maintains its negative outlook on the London market, reflecting “continued pressure on underwriting profitability.”
A U.K. parliamentary committee has approved a new set of financial regulations aimed at making the London market a center for insurance-linked securities activity, and regulators are seeing cautious industry interest.