Continuing rate increases, improved policy wording clarity and cost reductions are underpinning a stable outlook assigned by AM Best to the London market.

The ratings company says the COVID-19 pandemic has highlighted the importance of removing ambiguity around business interruption and other risks, such as cyber, and renewals have required a high degree of engagement.

“Overall AM Best believes that greater clarity and consistency in policy wordings will support the London market over the longer term, reducing the risk of unanticipated losses, costly legal action and reputational damage,” it says.

Tightening of terms and conditions should also be easier to achieve in the hardening market, which is expected to continue through this year, it says in a report.

AM Best says the London market is known for its “stubbornly high” cost of doing business but pandemic lockdowns have accelerated a long-needed change in the acceptance of digital solutions.

Factors moderating the outlook include continuing pandemic impacts, US casualty claims inflation and an uptick in catastrophe losses, including from secondary perils and climate trends.

“There remains uncertainty over the ultimate costs of COVID-19 related claims, including the impact of third-party claims in lines of business such as directors’ and officers’ insurance,” AM Best says.

The London market has significant exposure to US and Japanese catastrophes, which have increased in recent years, and insurers and reinsurers are also responding to rising risks from secondary perils such as wildfires, torrential rainfall and droughts.

“Wildfires, for example are now being remodelled and (re)insurers are charging more for cover than in the past,” AM Best says.

The London market encompasses Lloyd’s syndicates and non-Lloyd’s specialty insurers and reinsurers operating in the UK capital city.