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Member, Beacon International Group, Ltd.
LONDON--Underwriters must walk away from business if they feel pricing is inadequate--both for their own benefit and for the benefit of buyers, according to the chief executive of Lloyd's of London.
The insurance industry is based on security and the promise to pay in the event of a loss, said Lloyd's Chief Executive Nick Prettejohn. "To discharge that function, underwriters need to make a profit," he said during a presentation at the Chartered Insurance Institute's annual conference in London Thursday.
"While rock-bottom rates may seem attractive to policyholders in the short term, in the long term they are the road to nowhere," he said.
Mr. Prettejohn said he regards as "extremely heartening" the recent moves by some Lloyd's-based businesses to walk away from certain lines.
"Those sentiments should be applauded and echoed loudly across the whole insurance and reinsurance marketplace," Mr. Prettejohn said. "I strongly believe this to be in the best long-term interests of everyone--policyholders, brokers and underwriters."
Mr. Prettejohn noted that as part of its new franchise-based regulatory system, Lloyd's has developed new underwriting guidelines designed to prevent a repeat of the mistakes of the past.
"For instance, the maximum gross line from an individual risk should be no more than 10% of a syndicate's capacity, and each syndicate should retain a net minimum exposure on each risk," he said.