PwC modelling suggests underwriting discipline could be worth up to seven points of return on capital

New analysis uses a series of illustrative scenarios to explore how underwriting performance could develop as the insurance market softens through to 2030. Under the same illustrative market pricing movements, the modelling suggests different underwriting performance could translate into a seven-percentage-point gap in return on capital.

Ahead of the Reinsurance Rendez-Vous, PwC UK has modelled an illustrative softening cycle through to 2030. The analysis suggests the London Market enters this phase from a stronger position than in the previous soft cycle, supported by significant hard market pricing gains, higher investment returns and improved expense ratios. PwC expects meaningful further softening, but not a repeat of the depth of the previous soft market.  

However, the modelling suggests those structural advantages should not be taken for granted. The returns achieved during the next phase of the cycle will depend not only on market conditions, but on how effectively firms translate their underwriting strategies into pricing, portfolio management, capital allocation and incentive structures as competitive pressures intensify.

Andy Moore, PwC’s London Market Leader, comments:

“The industry has spent years investing in underwriting controls, analytics and governance. The real test will come as competitive pressures continue to increase. Previous soft markets showed how easily commercial pressures can encourage firms to prioritise premium growth and market share over pricing discipline and long-term profitability. The businesses that outperform over the next cycle are likely to be those that ensure incentives, underwriting decisions and capital allocation remain focused on sustainable, risk-adjusted returns rather than volume alone.”

Notes to editor

Source: PwC analysis of Lloyd’s data and wider London Market experience.
Prospective outcomes are illustrative scenarios rather than forecasts.