Fitch positive on Lloyd’s emerging markets’ expansion

by Gill Montia

Story link: Fitch positive on Lloyd’s emerging markets’ expansion

The Lloyd’s insurance market’s planned expansion into emerging markets is a net positive, even though writing insurance outside established markets carries additional risks, Fitch Ratings reports.

According to the credit rating firm, Lloyd’s already writes 25% of its business outside Europe and North America and premium growth in emerging economies is outpacing that of developed markets.

Fitch also observes that the syndicated nature of Lloyd’s should work to its advantage in tapping new markets, explaining: “The structure of the Lloyd’s market assists it in sourcing new capital and underwriting large complex risks, compared with an individual company.”

In addition, Lloyd’s special purpose syndicates, which allow investors to support underwriting on a limited time basis, should add to this flexibility.

However, last year’s Asia-Pacific catastrophes (including locations traditionally viewed as non-peak) demonstrate the risks of writing insurance in less well-understood markets.

Fitch comments: “These incidents led to significantly higher underwriting losses than reinsurance companies had forecast, due partly to the limited historical loss and exposure data compared with the US and western Europe.

“This shortcoming has been compounded by the insurance industry’s increasing reliance on catastrophe models to assess the risk contained within their portfolios.”