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Lloyd's results by class: marine, energy, aviation, motor

 

Lloyd's marine loss jumps to £469mn

Claims from hurricanes Harvey, Irma and Maria (HIM) caused underwriting losses in the Lloyd's marine segment to more than triple in 2017.

Losses deteriorated to £469mn ($662.7mn) from a £129mn loss in 2016, spurred by claims from natural catastrophes in September.

Marine CoR

Despite absorbing losses, the market continued to grapple with deteriorating claims and anaemic pricing in the second half of the year as capacity remained high.

The accident-year ratio for the marine class of business deteriorated by 13.4 points to 121.8 percent.

The marine reinsurance market offered a more muted response to the catastrophes, with the International Group's excess-of-loss reinsurance programme achieving a slight rate reduction when it renewed in February.

Rates on the bellwether account declined by between 1 percent and 2 percent following a difficult renewal that saw underwriters scrabble to prove their worth.

The combined ratio for marine business at Lloyd's deteriorated by 16.2 points to 122.4 percent.

Prior-year reserves were strengthened by 0.6 percent over the year, compared with a 2.2 percent reserve release in the prior year.

Gross written premiums for the period edged up by 1.5 percent to almost £2.51bn.

In its full-year report, Lloyd's said the marine segment had already been "under stress" in the first half of the year and identified cargo and yacht lines as particularly vulnerable to margin pressure from HIM losses.

Marine claims from the third quarter catastrophes reported by this publication included the loss of two Sunsail fleets costing at least $105mn and a $70mn loss from Rhode Island-based Falvey Yacht Insurance.

In October the marine cargo market was hit by a $60mn claim arising from Hurricane Harvey after South Korean auto manufacturer Hyundai Motor Company suffered damage to a consignment of cars in transit.

Meanwhile, in November a judgment issued by Spain's Supreme Court ordered the London Club to pay $1bn in damages in relation to the Prestige, a single-hulled tanker that sank off the north-western coast of Spain in 2002.

In its 2017 report, Lloyd's noted anecdotal suggestions that HIM losses had acted as the catalyst for an underlying price improvement.

"However, it remains to be seen whether the price firming seen towards the back end of 2017 into 2018 is sustained throughout 2018," it added.

Energy in the black as carriers double 2016 takings

Energy insurance was the only line of business within Lloyd's to turn a profit in 2017, providing a bright spot in an otherwise disastrous year.

Collectively, energy carriers at Lloyd's achieved an underwriting profit of £105mn ($148mn), almost double the previous year's result of £59mn, according to the market's annual report.

Energy CoR

Energy insurers achieved a combined ratio of 86.6 percent, an improvement of 6 percentage points year on year.

However, the combined ratio was kept in profitable territory by 21.1 points of reserve releases, up 7.3 points year on year. Lloyd's said the releases were "supported by favourable development on known claims".

Energy gross written premiums (GWP) grew by 12.9 percent to £1.25bn in 2017. This was the first increase since 2012, when GWP hit a peak of £1.7bn before falling steadily in subsequent years due to depressed oil prices stymying exploration and production activity.

Lloyd's said premium growth was still held back by a strengthening US dollar exchange rate in the first half of 2017, compared to the period prior to the Brexit referendum in 2016. A substantial proportion of energy business is signed in H1 of each year.

Prices were further eroded last year, Lloyd's said, as capacity remained at "record levels", although in onshore property in particular there were signs of price reductions beginning to slow.

Reductions in major upstream and downstream property lines began to tail off. The oil price also began to recover, but not enough to encourage a significant increase in offshore exploration or production, the Lloyd's report said.

There were large losses in onshore property in 2017, including the explosion at an Abu Dhabi National Oil Company facility. The report also said power generation suffered from the impact of hurricanes Harvey, Irma and Maria.

Offshore property experienced relatively little loss activity, which together with the favourable reserves balanced out the overall segment's results, Lloyd's said.

Looking ahead, Lloyd's said prices may harden in the short to medium term despite the high levels of capacity, thanks to high loss activity in the past two years for onshore property and reserve deterioration for offshore property.

Attritional losses and GA claims dog aviation line

The aviation segment at Lloyd's recorded a 2017 underwriting loss of £11mn ($15.7mn), even though last year proved to be one of the safest on record for revenue-paying passengers.

The business segment swung to a loss from a £71mn underwriting profit the previous year, however the 2016 result was bolstered by reserve releases of 22.2 percent.

Aviation CoR

While no single all-risk aviation loss exceeded $50mn in 2017, the combined ratio for the line of business still deteriorated by 17.5 points to 102.2 percent.

Lloyd's registered an accident-year ratio of 100.6 percent across aviation, down from 106.9 percent in 2016.

An increase in attritional losses and significant general aviation (GA) claims contributed to the poor performance of the class of business.

Although no fatalities were reported for airline business, attritional losses continued to increase and the market absorbed a number of major GA claims.

Significant GA losses over the course of the year included more than $60mn of claims on the Sedena Mexican Air Force account and the crash of a Coastal Aviation safari plane in Tanzania with a $7mn hull value.

Gross written premiums across the line of business increased by 9.6 percent year on year to £687mn.

The performance of the class has also been affected by an increase in the risk profile of major airline accounts and an uptick in aircraft repair costs.

Slight single-digit rate increases at November renewals failed to cover the gradual increase of the risk profile, driven largely by the expansion of airlines in developing economies.

Attritional costs were also driven up by higher repair costs, with aircraft manufacturers increasingly using composite materials in airframes.

Speaking at an event at Lloyd's last week, John Bayley, regional director for Europe and Russia at McLarens Aviation, said the use of more complex materials and a lack of transparency from aircraft manufacturers were causing repair costs to spiral.

Aviation underwriters speaking to this publication agreed with this analysis, but added that the relatively low number of composite aircraft in service so far meant it was likely to be one of several factors affecting attritional losses.

Lloyd's motor loss widens amid global malaise

The Lloyd's motor market plunged further into the red last year as price rises spurred by the cut in the Ogden discount rate failed to turn the segment around.

The line of business, which has not made an underwriting profit at Lloyd's since 2008, posted a combined ratio of 122.3 percent for 2017 and an underwriting loss of £188mn ($264.4mn).

Motor CoR

The combined ratio deteriorated by 10.8 points from 2016, while the underwriting loss widened by 83 percent from a year earlier. The accident-year combined ratio came in at 114.4 percent.

Lloyd's said: "Underwriting conditions in the UK motor market continue to be challenging. While the market has seen pricing levels increase in 2017 following the Ogden discount rate change in February 2017, this has not been sufficient to correct performance which continues to be disappointing. International motor also continues to perform poorly."

The 3.25-point decline in the Ogden rate took effect last March and cost (re)insurers several billion pounds as they strengthened reserves in anticipation of escalating compensation claims.

In 2017, prior-year reserve strengthening increased to 7.9 percent of net earned premiums, compared to 2.6 percent in 2016, Lloyd's said.

The government on 20 March introduced a bill to reform the Ogden rate. But in the Lloyd's report a day later the Corporation warned that premiums would continue to inflate to cater for the current minus 0.75 percent rate and the knock-on increase in reinsurance costs.

It also said whiplash reforms, which the government is including in the same legislation as the Ogden bill, should cut attritional losses. However, Lloyd's warned of a potential spike in claims activity before the reforms kick in.

The rising cost of repairs will also remain a challenge, it added.

Motor gross written premiums grew by 1 percent to £1.06bn in 2017.

Net claims in the segment rose by 8.5 percent to £723mn, while operating expenses edged down 6.7 percent to £308mn.

The Lloyd's motor market last made a profit in 2008, when it turned in underwriting earnings of £3mn and a combined ratio of 99.6 percent.

The motor market's best performance of the past five years was in 2015, when the underwriting loss narrowed to £17mn from £71mn in 2014.

 

 

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