Edison reports on Lloyd’s

Edison Investment Research has issued an insurance sector report on Lloyd’s called Cliff edge or knife edge?

The summary says: This report covers the 10 specialist underwriters (‘the Lloyd’s insurers’) quoted in the UK. The very nature of their business, particularly in areas like catastrophe reinsurance, is inevitably volatile and it is also cyclical, although maybe less so than in the past.

“The cycle is in a softening phase which combined with persistently low investment returns has the potential to drastically reduce sector profitability. However, paradoxically, in this sector a lot of pain is good, reducing capital and instilling greater discipline in pricing.

“In this environment we expect near-term profitability to be much weaker than in recent years, but to remain solidly positive in the absence of a major industry loss event. This is why we think the sector is on a knife edge and not at the edge of the cliff.