Lloyd’s provides an update on the factors driving growth in the US property & casualty P&C insurance market.
Last year the US accounted for about 47% of Lloyd’s premium income and that has been growing at a steady pace for the last ten years, says Hank Watkins, Regional Director and President of Lloyd’s Americas.
He attributed this increase in large part to the growth of the US economy, as well as rising demand for natural catastrophe insurance as our climate changes.
The intensity and spread of inflation is sending insurance claims costs soaring. Strong rate hardening in commercial insurance lines and acceleration in personal lines rates support topline growth, but higher claims severity is eroding the profitability benefit.
Another major factor driving product development and innovation across the US market is the growth of the sharing economy.
Sharing economy companies are increasingly looking for insurance products that protect their own operations as well as the tangible and intangible assets that they share on their platforms. Insurers must think beyond traditional products and services to effectively meet these needs. And this is where the Lloyd’s market “really shines”.
Nominal direct premiums written (DPW) growth at 8% in 2022 and 6.3% in 2023. Risks are skewed to the downside, but we revise up our 2022 midpoint return on equity (ROE) estimate to 5.5%. We maintain our 6.0% ROE forecast for 2023.
Light catastrophe activityand reserve releases in 1Q22 supported underwriting results, but we continue to expect a difficult year for the industry. According to Natural & Man-Made Catastrophe Loss Outlook, the effects of surging inflation on claims costs are only partly offset by the investment benefit from higher interest rates.
One of the advantages of Lloyd’s is we tend to find new ways to offer risk transfer solutions to industries that are just beginning.Hank Watkins, Regional Director and President of Lloyd’s Americas
Once that certainty of financial protection following an incident becomes available to the users of those [sharing economy] platforms, the whole industry has really taken off.
Look at all the innovation coming out of those businesses in Silicon Valley. They are bringing new products and services to the market without track records. And they’ve been assisted over their development by the Lloyd’s marketHank Watkins, Regional Director and President of Lloyd’s Americas
Another area where companies are increasingly looking for smarter ways to protect themselves is in the digital realm. “We’ve seen an increase in ransomware attacks in recent years,” says Watkins.
Initially this started as threats from activist groups, but it has evolved into a much more sinister global problem. The Lloyd’s market was at the forefront of not only bringing risk transfer solutions, but also [offering services] at the front end before an attack even begins…to enable people to fortify their defences against potential cyber-attacks.
In 1Q22 industry net income was USD 29.3 billion for an 11.1% annualized ROE, or 7.1% adjusted for two large intracompany transactions. Unadjusted net investment income of USD 28.1 billion, including net realized capital gains of USD 4.4 billion, drove the quarterly result.
In addition to inflation and geopolitics, results continue to be pressured by behavioral shifts since the start of the pandemic. 2021 was the deadliest year for traffic fatalities since 2006 – a statistic that also indicates higher motor claims severities. Liability lines remain affected by social inflation, with the effects expected to become increasingly evident in paid claims.