Lloyd’s forecast to see best underwriting result since 2014: ICMR

The Lloyd’s insurance and reinsurance market could report its lowest combined ratio since 2014, according to a forecast from Insurance Capital Markets Research.

Leveraging its (Re)Insurance Specialty Index (RISX), an equity benchmark for the global specialty re/insurance sector based on publicly listed companies with underwriting subsidiaries in Lloyd’s of London, the analysts forecast suggests that investing into Lloyd’s business at this time could be particularly attractive, loss activity allowing.

The RISX Index provides both a benchmark for investing at Lloyd’s, but also acts as a lead indicator of Lloyd’s pro-forma annual accounting performance, through accumulating underwriting data from the component companies’ 2022 financial statements, ICMR explained.

These companies operating at Lloyd’s report some time before the market itself announces its result, which ICMR notes provides early insight into the likely performance of the market.

As a result, ICMR’s central forecast for Lloyd’s is a combined ratio of sub-90%, which would be Lloyd’s best underwriting results since 2014, when it reported a combined ratio of 88.1%.

ICMR further explained, “Historically, Lloyd’s combined ratio follows the RISX index weighted combined ratio closely, being slightly better in profitable years and slightly worse in unprofitable years, which can be attributed to Lloyd’s slightly greater overall volatility.

“The combined ratio for the RISX index portfolio is currently predicted at 93%. This points to Lloyd’s 2022 combined ratio likely being below 90%.

“This would continue the improvement observed last year with a reduction to the low 90s and reflects the much improved underwriting environment. It is also a reflection of central decision making at Lloyd’s over who they allow into the market and who they allow to grow their businesses.”

The analysis and forecast for Lloyd’s 2022 performance is based on a Bayesian regression model, using the historical RISX portfolio and Lloyd’s pro-forma combined ratios.

As of March 3rd 2023 the aggregated RISX portfolio combined ratio for 2022 reflects 78% of the weights, ICMR said, with some companies set to report later this week (Hiscox and Hannover Re), plus Asian companies data to be included in late April/May.

As Schroders Capital ILS explained recently in a whitepaper, for those able to navigate the complexity inherent in the Lloyd’s insurance and reinsurance market, the conditions for investing there are looking increasingly favourable.