< Previous78BEST’S REVIEW • JANUARY 2023 Industry Updates Lloyd’s Markets Chief: Property and Specialty Lines See Dislocations Going Into 2023 The confluence of high inflation, rising interest rates, elevated catastrophe losses and uncertain capital flows is apparently without recent precedent, but Lloyd’s says its 2023 plan is on target in terms of attritional loss ratio, and operating expenses are on plan. L loyd’s has been watching dislocations in its property and specialty markets as the 2023 underwriting year deals with inflation and high catastrophe losses among other issues. “Recent weeks have demonstrated a dislocation in property and specialty markets that is beyond what Lloyd’s underwriters had forecast when they submitted their 2023 plans in September,” said Chief of Markets Patrick Tiernan in a market update video. While upbeat about the market overall, he said recent developments “will require us to up our game in the coming weeks and months.” The confluence of high inflation, rising interest rates, elevated catastrophe losses and uncertain capital flows “appears to be without recent precedent,” said Tiernan. Noting the Lloyd’s 2023 plan is on target in terms of attritional loss ratio and operating expenses are on plan, Tiernan said the market expects top-line growth of 14.3% at constant exchange rates and gross written premiums are expected to be £56 billion ($68.4 billion), largely driven by inflation. “For the majority of classes this implies double- digit rate increases for at least another year,” he said. The Lloyd’s market was anticipating peak inflation around the end of 2022 tapering into 2023. If the tapering isn’t enough, the market will have to take measures accordingly, said Tiernan. Lloyd’s is planning for property premium of about £18 billion in 2023, or about one-third of its book, said Tiernan. Hurricane Ian showed the market is adapting well to catastrophe losses, he said. Lloyd’s is estimating claims of $2.3 billion to $3 billion to the Lloyd’s market from Ian. The claims are net of reinsurance and based on third-quarter data provided by Lloyd’s syndicates, Lloyd’s said at the time. Tiernan said Lloyd’s has “the headroom” to grow the catastrophe book sensibly and is ready to respond quickly to “well-considered submissions.” If there are opportunities to make risk-adjusted rate increases above planned submissions, Lloyd’s expects underwriters will make changes to their plans where warranted, he said. War-affected classes such as political violence, trade credit, terrorism, aviation and land and marine war represent about £6 billion in premiums, just over 10% of the Lloyd’s total book, said Tiernan. The estimated net loss for Lloyd’s of about £1.1 billion from the Ukraine conflict remains a manageable event, with 95% of it being that incurred but not reported losses that remain unchanged since the second quarter, he said. Lloyd’s continues to work with governments on complex aviation claims and on marine lines on the safe passage of grain through Black Sea conflict zones, said Tiernan. Marine underwriters in the market are dealing with late developments for renewals about exclusionary contract language and new aggregation issues among other things, he said. All other lines of business make up about 60% of the Lloyd’s portfolio, with cyber and directors and officers liability among highlights, said Tiernan. Cyber continues to be the fastest growing liability class in Lloyd’s, which he said manages over 20% of the global premiums. Return on risk capital in this line has moderated but growth is encouraged for expert syndicates, he said. D&O is the only major class that has seen positive rate changes and a negative return on risk capital, said Tiernan. Lloyd’s has a current Best’s Financial Strength Rating of A (Excellent). BR —David Pilla “Recent weeks have demonstrated a dislocation in property and specialty markets that is beyond what Lloyd’s underwriters had forecast when they submitted their 2023 plans in September.” Patrick Tiernan Lloyd’s79BEST’S REVIEW • JANUARY 2023 AM Best Business Development RepresentativeMobile PhoneEmail AddressOfficeAreaCovered RATING SERVICES Brad Mazur, Managing Director+1 (908) 268-0763brad.mazur@ambest.comUSA (NJ)BMU; CAN; CAR; USA & US Territories (PR & VI) Brendan Tyne, Associate Director +1 (908) 323-1412brendan.tyne@ambest.comUSA (NJ) BMU; CAN; CAR; USA & US Territories (PR & VI) Todd Burrows, Senior Account Manager+1 (908) 268-5642todd.burrows@ambest.comUSA (NJ) BMU; CAN; CAR; USA & US Territories (PR & VI) Daniel Giunta, Account Manager +1 (908) 455-6249daniel.giunta@ambest.comUSA (NJ)BMU; CAN; CAR; USA & US Territories (PR & VI) Nick Charteris-Black, Managing Director +44 20 7397 0284nick.charteris-black@ambest.comLondon EMEA Edem Kuenyehia, Director +44 20 7397 0280edem.kuenyehia@ambest.comLondonSub-Saharan Africa Riccardo Ciccozzi, Director +44 20 7397 0309riccardo.ciccozzi@ambest.comLondonSouthern Europe William Mills, Senior Director +44 20 7397 0323william.mills@ambest.comLondonNorthern Europe Róisín Gallagher, Associate Director +44 20 7397 0261roisin.gallagher@ambest.comLondonEurope Carlos De la Torre, Senior Director +52 55 7903 5420carlos.delatorre@ambest.comMexico City CAR & LATAM Rob Curtis, Managing Director+65 9633 6118robert.curtis@ambest.comSingapore AP; 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To learn more about The Nelson Collection at Lloyd’s, visit www.ambest.com/nelson80BEST’S REVIEW • JANUARY 2023 The Last Word I n 1982, Nationwide subsidiary Veterinary Pet Insurance issued the country’s first pet health insurance policy for screen star Lassie. Forty years later, pet insurance is growing rapidly, and VPI, now Nationwide pet insurance, is at the forefront. Overall, pet insurance in the United States grew 30%, to $2.6 billion from $2 billion in 2020, according to the North American Pet Health Insurance Association. At the end of 2021, approximately 4.41 million pets were insured across North America, up 27.7% from the previous year, according to the organization’s 2022 State of the Industry Report . The report states that nearly 20 companies offer pet health insurance in the United States, Nationwide pet insurance President and Chief Pet Officer Heidi Sirota said. “Veterinary medicine has advanced greatly over the years, and many treatment options we have for humans can now be done to save the lives of our pets,” Sirota said. “These treatments can run into the thousands of dollars.” The American Animal Hospital Association estimates the lifetime cost of owning a pet can be as much as $55,000 for dogs and $45,000 for cats. Sirota said pet health insurance covers accidents, illness and/or wellness, each with varying degrees of coverage and reimbursement. Nationwide had $176.63 billion in direct premiums written in 2021, up from $144.31 billion in 2020. It leads the industry, but it isn’t the only company that’s growing in the pet health insurance world. American Pet Insurance Co. serves as the underwriter for Seattle-based Trupanion, which is growing internationally. It acquired Smart Paws GmbH, which operates in Germany and Switzerland. It will expand into the Czech Republic and Slovakia with the acquisition of Royal Blue s.r.o., the parent company of PetExpert. It also started a joint venture with Aflac to offer pet health insurance in Japan. Luxembourg-based JAB Holding Co. has said it aims to become a global leader in pet insurance and pet health. Fairfax Financial Holdings Ltd. sold all of its interests in Crum & Forster Pet Insurance Group and Pethealth Inc. to JAB-majority owned Independence Pet Group and affiliates for $1.4 billion. JAB subsidiary Pinnacle Pet Group will acquire Netherlands-based pet insurer Veterfina Verzekeringsmaatschappij N.V. and its European subsidiaries for an undisclosed amount. It also acquired Germany-based AGILA Tierversicherung AG from the Wertgarantie Group, and formed a strategic alliance with BNP Paribas Cardif to offer pet insurance in the United Kingdom, Europe, the Middle East, Asia and Latin America. JAB expects to cover more than 2.1 million pets in 2023. It anticipates its pet health gross written premiums and pet health service revenues will exceed $1.2 billion by that time. “I can’t speak for the veterinarians who founded the company more than 40 years ago, but clearly they were visionaries,” Sirota said. “They introduced pet health insurance in this country to address the changing dynamic of pets becoming part of the family.” Dog’s Best Friend: More Humans Protecting Pets Through Health Insurance The number of homes with pets is growing, and the number of pets that are covered by insurance has exploded. by Anthony Bellano Anthony Bellano is an associate editor. He can be reached at anthony.bellano@ambest.com.We believe insurance extends beyond financial security, and that progress is more than just moving on. In every part of our business, we pioneer the industry, harnessing the power of evolutionary innovation and 140 years of expert vision. 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