“We had the very ambitious Future at Lloyd’s that launched last September. It was six strong initiatives we were going to roll out across the world, but then COVID-19 hit,” he said. “We, like everybody in the industry, have done our absolute best to respond to the challenges that have faced us and we’re doing our best to support customers, businesses, and governments across the world.”
Lloyd’s results through the first half of 2020 have unsurprisingly been impacted by COVID-19 and the related economic challenges it has caused. The marketplace saw about £2.4 billion-worth of losses through June 30, which led to a £400 million loss in H1 2020, though there are silver linings as well.
“By and large, those of you out there who have wrestled with finding the types of Lloyd’s capacity that you’ve been used to in the past … have realized that the priority in the marketplace has been performance, profit, etc. over the past couple of years,” said Watkins. “We’re very proud to say that traction has definitely taken place this year, despite COVID-19’s challenges to us, and it’ll continue going into 2021 and beyond, because that has to be the place we end up – is under 100% combined ratio. That’s the ultimate aim. We’ve been there before, as recently as 2016, and we’ll get back there again.”
Pricing in both the standard lines and E&S space has nonetheless been accelerating, he added. Lloyd’s has had 11 consecutive quarters of price increases and experienced an average price increase of 8% across the market through the first half of 2020, noted Watkins.
A similar tale was told during the WSIA panel focusing on the “2020 Market Segment Report on US Surplus Lines,” produced by A.M. Best with a grant from the WSIA Education Foundation.
Prior to the onset of the pandemic, A.M. Best maintained a stable outlook for the surplus lines market sector, citing dynamic market conditions that would nonetheless remain supportive of premium growth, favorable underwriting performance, and the maintenance of strong risk adjusted capitalization for the surplus lines segments as a whole, explained David Blades, associate director, industry research and analytics at A.M. Best. The ratings firm likewise noted that the long-term commitment of surplus lines companies to core competencies and successful business practices have allowed them to flourish.
However, after COVID-19 hit, “There was a subsequent decision made in early April to revise the outlook for the surplus lines industry – along with pretty much all our other outlooks from a commercial lines perspective – from stable to negative, so the current outlook for the surplus lines market is negative,” he explained. “That decision directly reflected the economic disruption in the US stemming from the COVID-19 pandemic and the effect that we expected that contraction rate in the US economy to have on the surplus lines market.”
It’s not all bad news, though. The report on surplus lines from A.M. Best highlighted the 11.2% growth in surplus lines direct premium written in 2019, with surplus lines premium reaching $55.5 billion and setting a new record for the segment. Other takeaways included the fact that there had been no financial impairments in the surplus lines segment, in comparison to 13 admitted property and casualty company impairments in 2019, and that surplus lines insurers’ market share has more than doubled in size over the last two decades, from 3.6% of total P&C direct premiums written in 2000 to 7.8% at the end of 2019.
Overall, the successes of the surplus lines market have continued, despite the pandemic, noted Blades: “A.M. Best has been somewhat surprised at just how resilient the surplus lines market segment has proven to be through these headwinds brought forth by COVID-19, in terms of how the surplus lines companies have fared through the second quarter based on the results that we’ve looked at so far. Our plan is to see how things play out through the rest of 2020, and to update market segment outlook during the first quarter of 2021.”