The London insurance market has come a long way but needs to address a number of challenges if it is to retain its excellent reputation, according to ratings agency Fitch.

It says in a new report that the biggest challenge facing the market is its ability to manage the underwriting cycle, with premium rates for most business lines declining during the January renewal season.

Fitch expects this trend to continue in the absence of large catastrophes over the last two years.

Fitch says capital management has become an important consideration, as has business process reform, an area that has been a challenge for London market insurers competing with insurers in locations where risk placement, claims processing, accounting and settlement is more efficient.

It also says insurers operating in the London market need to be prepared for the introduction of Solvency II by 2012, which Fitch believes will greatly improve risk management and transparency.

“The London market needs to face up to a number of internal and external challenges if it is to successfully compete with other centres of insurance expertise such as Bermuda,” the report said.