Lloyd's faces volatility from catastrophe, long-tail risks

Reinsurance, the largest segment of Lloyd’s, contributed US$23b in GWP last year.

In 2023, Lloyd’s reinsurance business performed strongly, benefiting from excellent pricing conditions and improved reinsurance terms, according to AM Best.  

Whilst there were signs of moderating pressures, the market achieved significant gains through better underwriting discipline, supported by the corporation’s performance oversight.  

Lloyd's continues to outperform its peers in terms of loss experience, though its exposure to catastrophe risks and long-tail lines introduces volatility, said AM Best.  

Reinsurance, the largest segment of Lloyd’s, contributed US$22.84b (GBP17.3b) in gross written premiums (GWP), representing about one-third of the market’s total.  

This segment is composed of property (50%), casualty (30%), and specialty (20%) reinsurance.  

The reinsurance business has grown at a compound average growth rate of 9% over the past five years, with premiums increasing by 12.8% in 2023.  

Growth was driven by material increases in property and specialty lines, supported by a strong risk-adjusted rate change. Casualty reinsurance has been the fastest-growing line, with a compound annual growth rate of 15% over the past five years.  

The market relies heavily on brokers, particularly the three largest global brokers, which dominate the distribution of Lloyd’s business. Whilst this model provides access to regional markets, it is expensive and exposes Lloyd’s to competition based on pricing.  

Between 2017 and 2020, Lloyd’s reinsurance business faced significant challenges, accumulating nearly US$3.96b (GBP3b) in underwriting losses.  

However, market conditions improved, and by 2023, the combined ratio for reinsurance reached 80, a significant improvement from 117 in 2017.  

Property reinsurance saw a particularly strong combined ratio of 73, driven by rate hardening, whilst casualty and specialty lines reported combined ratios of 90 and 84, respectively.  

Despite some mixed impacts from prior years’ reserve development, Lloyd’s reinsurance business achieved an underwriting profit of US$3.3b (GBP2.5b) in 2023, a marked improvement from US$839.52m (GBP636m) in 2022 and US$645.48m (GBP489m) in 2021.  

This was largely due to favourable conditions in property, casualty, and specialty reinsurance segments.

(US$1.00 = GBP0.76)