Property lines suffered at Lloyd’s in 2020, but rate momentum expected to persist

Property insurance and reinsurance lines of business suffered at Lloyd’s in 2020, with elevated combined ratios reported partly due to the frequency of attritional catastrophe losses, as well as business interruption impacts from COVID-19.

While underlying performance appears improved in some areas, it’s less clear in the property related lines.

Lloyd’s property insurance line of business reported an accident year combined ratio of 135.4% for 2020, significantly higher than the 101.5% reported for 2019.

Unfortunately, Lloyd’s doesn’t break out the exact contributions from natural catastrophes and the COVID-19 pandemic, but it seems elevated cat losses are a reasonable component of this, so the increase cannot solely be put down to coronavirus related business interruption.

One factor in this significantly worse property insurance result for the Lloyd’s market has been the aggregation of numerous smaller loss events it seems, with this factor meaning reinsurance recoveries have been less supportive for the syndicates.

Lloyd’s explained, “2020 has been characterised by the impact of COVID-19 on business interruption covers. In addition, we have seen an abnormally high frequency of natural weather catastrophe events. Hurricanes Laura, Delta, Sally and Zeta particularly impacting the various lines. Beyond these, we have also seen significant severe storm activity, hailstorms and US wildfire events to further challenge overall performance.

“Additionally, social unrest observed within the USA during 2020 has globally impacted some syndicates results more than others. This has caused some underwriters to review their appetite and approach to writing such perils going forward.

“Despite the high frequency of events, individual losses often meant reinsurance recoveries fell below expected levels. Such losses largely falling within syndicates’ own retentions and impacting overall performance.”

On the attritional side, Lloyd’s believes remediation efforts are starting to show promise and says early signs suggest the underwriting actions taking will help and manifest further through the coming year.

Prior year catastrophe loss creep continues though, with Lloyd’s reporting that deterioration was seen for Hurricane Irma (2017), Hurricane Michael (2018) and Storm Dorian (2019), but that this was partially offset by favourable movements on Californian Wildfire events from 2017.

Looking ahead, for property insurance, Lloyd’s expects pricing levels to show “further material movement and continue to build on actions taken during 2020 and prior by the market.”

Lloyd’s also explained, “Higher reinsurance costs in 2021 are also likely to further support continued momentum in pricing levels. Movement in terms and conditions are also anticipated to be a feature of 2021, as underwriters continue to remediate poorer performing accounts or as part of pricing negotiations. Underwriting discipline remains critical for syndicates to successfully execute and deliver upon their approved 2021 plans, given the anticipated levels of available business in 2021.”

Gross written property insurance premiums were £9,227m for 2020, which was actually a decline of 3.7% on 2019’s £9,586m.

The property reinsurance line of business also suffered in 2020, but it seems more due to the aggregation of catastrophes than COVID-19 related business interruption claims, so far.

Gross written premiums in property reinsurance at Lloyd’s for 2020 reached £6,627m, an increase of 3.5% on 2019’s £6,405m.

Lloyd’s reports that the accident year combined ratio for the property reinsurance line in 2020 reached 112.8%, up on 2019’s 106.5%.

“2020 was a record-breaking year for natural disasters, with more storms in the North Atlantic than ever before, as well as many other catastrophic events occurring globally. While individually the insured losses from 2020 natural disasters were less severe than some experienced in prior years, reinsurers have still accrued meaningful losses,” Lloyd’s explained.

But on the pandemic, Lloyd’s said, “COVID-19 losses are expected to impact this line of business, although there are several primary policy and reinsurance treaty wording issues to be resolved,” suggesting that for the reinsurance line some of the COVID-19 business interruption claims are anticipated in 2021.

Loss creep continued in property reinsurance for the Lloyd’s market, with Hurricane Irma (2017), Typhoon Jebi (2018), Hurricane Michael (2018), Storm Dorian (2019), Typhoon Faxai (2019) and Typhoon Hagibis (2019) all subject to a deterioration in their ultimate losses during 2020.

Some syndicates saw favourable movements on those specific losses though, suggesting experience was far from equal and in addition the property reinsurance line also benefited from reserve releases related to the 2017 Californian wildfires.

Looking ahead for property reinsurance, Lloyd’s notes the surplus of capacity that remains in the reinsurance market.

The market expects property reinsurance pricing adequacy to continue to improve as 2021 progresses, after a slower than anticipated start at 1/1 renewals.

Lloyd’s believes the momentum will persist as well, it seems, saying that, “it seems unlikely that any pricing changes related to COVID-19 will be fully incorporated for some time in this sector,” which suggests the current trajectory in reinsurance rates may continue.