Opinion: Casualty concerns
After a year like 2017, the spotlight will naturally fall on the property losses at Lloyd's. Hurricanes, wildfires and earthquakes all grab the headlines and will be front of mind when commentators assess what drove the overall loss at Lloyd's last year.
However, as has already been pointed out elsewhere in this publication, the underlying result excluding catastrophes was poor too, due in part to the fact that casualty fell to a £189mn loss.
While property remains the dominant risk at Lloyd's, this is the third year in a row that this class of business has failed to make any profit.
The calendar year combined ratio was 103.1 percent last year, rates are at best up by low-single digits on average, and yet the market remains flush with capacity. Despite this, the markets continue to flock to the class.
The market's top line for casualty grew by 18.7 percent to £8.65bn in 2017, and while some of that was down to foreign exchange impact, increased exposures and new entrants into challenging lines such as accident and health (A&H) was also a factor. China Re and Barbican are among those which have entered A&H in 2017.
The future picture does not look much brighter. There have been concerns over reserve strength in recent years, particularly in the A&H segment where there were a number of large losses affecting the 2016 year. Lloyd's has also already warned that financial and professional lines could endure further volatility given they are more exposed to the global fragile recovery.
And the known - and unknown - unknowns surrounding cyber liability continue to give underwriters sleepless nights.
Add to this an expected increase in claims frequency and the severity arising from both increasing global regulation and litigation fuelled by third-party litigation funding, and you have to wonder why Lloyd's expects many insurers to expand their books.
The Corporation predicts that the stabilisation of prices is expected to continue in 2018, but rates remain woefully short of where they should be for the risks being undertaken.
And with so much capacity competing for business, it's unlikely we'll see any meaningful uptick in casualty rates from 2017's catastrophe losses.