The UK specialty insurance market suffered the costliest year on record in 2017, according to EY’s Annual Specialty Results analysis, due to a combination of natural and man-made catastrophes including hurricanes Harvey, Irma and Maria and the Californian wildfires.
This was felt at an overall market level, but performance was mixed within Lloyd’s syndicates as the impact was focused on a few large exposures. The overall result was that major claims rose by just under 10% to £4.5bn and return on capital at Lloyd’s fell from 8.1% in 2016 to -7.3 in 2017, moving from a £2.1bn profit to £2bn loss.
Even adjusting for major claims, ROC still showed a downward trend in 2017 – a 9.3% fall. While there was a slight increase in investment returns over the course of the year from 2.2% to 2.7%, which equates to £1.3bn to £1.8bn, there was a great deal of volatility during the period. US and UK monetary policy divergence led to mixed returns in the bond markets, and equity and growth assets had a slow first quarter, though recovered later. Growth assets, however, only accounted for around 10% of Lloyd’s aggregate assets.
Gross premium increased by 12% from £29.9bn to £33.6bn, however, underwriting profit dropped from £0.5bn to -£3.4bn – driven by large losses (£4.5bn vs £2bn in 2016) and smaller reserve releases. In fact, reserve releases were down significantly in 2017; two percentage points – from 5.1% (£1.2bn) of net premium in 2016 to 2.9% (£0.7bn) in 2017 – the lowest level since 2006.
All of Lloyd’s classes of business reported accident year losses for 2017, and the accident year attritional net loss ratio increased significantly from 53.3% in 2016 to 58.9%. The ratio deteriorated across property, casualty, marine and energy, but improvements were seen in motor, reinsurance and aviation.
EY’s UK head of specialty insurance Andy Worth said, “2017 was characterised by hurricanes Harvey, Irma and Maria, the Californian wild fires, an earthquake in Mexico, monsoon flooding in Bangladesh and a mudslide in Colombia. Global catastrophe losses were over $130bn. This greatly affected the specialty market which experienced its costliest year on record.
“The business environment remains challenging, and even discounting for these catastrophes, underlying performance and return on capital was down, as were the reserve releases. Despite some rate hardening in specific lines of business, we expect ongoing margin pressures and a focus on underwriting discipline and cost management. A