’Failure to prepare for risks could have capital implications,’ says rating agency
AM Best has maintained its outlook for the London insurance market as ‘stable’ – but warned economic headwinds could derail progress made over the last 12 months.
The rating agency revealed that the London market faced several challenges despite it expecting strong pricing in key classes to be maintained through 2023.
Headwinds listed included social and economic inflation, changing climate trends, potential threats from volatile economic conditions and the conflict in Ukraine.
The report warned that failure to adequately prepare for risks could have capital implications.
“Outside of the traditionally modelled natural perils, losses from major events such as the Covid-19 pandemic and conflict in Ukraine have had a major bearing on the fortunes of London market companies in recent years,” it added.
“Adequately assessing and pricing for less well or non-modelled risks is vital and failure to do so could have capital implications for some companies in severe scenarios.
“Moreover, with the growth of cyber risk within the London market and its sizable systemic exposures, adequate assessment of accumulation risk within this class has become increasingly important.”
However, against a backdrop of a challenging global macroeconomic environment and geopolitical risks, AM Best said a strong pricing environment was expected to support further improvement in underlying underwriting profitability.
It also revealed that higher interest rates were likely to boost investment yields and that improved access for third-party capital could support growth opportunities.
“Against a backdrop of a challenging global macroeconomic environment and heightened geopolitical risk, AM Best expects strong pricing in key classes to be maintained through 2023, supporting further improvement in underlying performance,” the report said.
“Furthermore, whereas premium rates are generally elastic over time, the positive changes to terms and conditions are likely to be longer lasting.”