Lloyd’s warns of capital implications amid aviation and energy pricing concerns

By Scott Vincent

March 13 - (The Insurer) - Aviation and energy were highlighted by Lloyd’s chief underwriting officer Rachel Turk as classes of concern in Lloyd’s first quarter market message on Thursday, with Turk warning of significant capital implications for writing under priced business.

“While aviation is a relatively small class at Lloyds and has shrunk dramatically since 2005, there are some significant areas of concern,” she said.

“We are seeing strategies that don't seem entirely logical to us for a class that has gone from probably to almost certainly inadequately priced.

“Claims trends suggest material rate rises or restructuring is warranted, but there is no guarantee that will happen.”

Turk warned that modelling assumptions around the cost of bodily injury may not be keeping pace with the claims environment, with a need for Lloyd’s to review underlying assumptions.

“In realistic disaster scenario this may well result in increased capital requirements and you might want to factor this into your return hurdles,” she warned.

She also warned of the potential for the energy loss environment to become more volatile, including for the subset of renewables.

“There have been some notable losses in offshore wind combined with intriguing decisions to reduce pricing and this is bringing the class to unsustainable loss ratios. The technology isn't new anymore and so poor underwriting results cannot be blamed on a lack of data,” Turk said.

For emerging technologies in the energy space. Turk said Lloyd’s will be challenging plans that want to write business at unsustainable levels.

“There are also some exciting opportunities with an uptick in both conventional and newer technology projects under construction, and energy overall is a class with huge growth potential,” she added. “We are prepared to engage with everyone who has a compelling strategy.”