The London market must change, its leaders say, to ensure it remains competitive and relevant to insurance and reinsurance buyers at a time when capacity is readily available from new sources, such as pension funds.
But the market's syndicate structure and ability to innovate mean it should continue playing an important role amid the increased competition for premiums and certain types of business, say London market observers.
The London Market Group coordinates the vision for the way insurance is handled between members of the International Underwriting Association, which represents London market underwriters; the London & International Insurance Brokers' Association; and the Lloyd's Market Association, which represents managing agents at Lloyd's of London. Group members said it is refocusing its efforts to set, maintain and promote “the common vision of London as the market of choice for global insurance.”
Steve Hearn, the new chair of the London Market Group and deputy CEO of Willis Group Holdings P.L.C., said that while the London market can “provide solutions to clients' problems in a way that no other market — and no other capital market — can,” it also is losing ground to other insurance centers.
In presenting his vision last month for the London Market Group, Mr. Hearn said while buyers may be “agnostic” about where the capacity that underwrites their risk originates, and while brokers and underwriters can do business outside of London, the market retains unique characteristics.
If it did not already exist, Mr. Hearn said, “it would have to invent itself” in order to handle the complex risks underwritten on a subscription basis.
Dave Matcham, CEO of the IUA, said the London market should not be complacent.
While some are concerned that smaller niche insurers and reinsurers are being “squeezed off” certain programs, this may actually be an opportunity for the market to “get better at what we do” rather than a threat, said Lloyd's finance director Luke Savage.
The comments came in part due to reaction to a recent influx of capacity from pension funds and other third-party capital providers that has increased competition for all forms of reinsurance and insurance business, notably property catastrophe business, and may have reduced the London market's share of the global insurance and reinsurance business.
While the subscription market, where multiple underwriters cover a single risk, has advantages, Mr. Hearn said that does not top buyers' priorities.
“Price is” at the top of buyer priorities, he said. “So if the subscription market adds costs, we may need to look at that.”
While there still is business that can be underwritten only in London because of its concentration of expertise in specialty business and the market's syndicated structure, “this is beginning to change,” Mr. Hearn said.
A collective effort is needed to ensure London retains its position, he said, adding that data is needed on the size of the Lloyd's and London markets to better understand its position globally.
While there is no single source of premiums underwritten by all insurers and reinsurers in London, Mr. Hearn cited Willis' business as an example of premiums shifting elsewhere: In 2007, Willis placed about 16% of its premiums in London; today, it's about 10% even though he said Willis' worldwide premiums have not decreased.
The London Market Group will focus on coordinating talent, diversity and training efforts; lobbying government and regulators to ensure rules do not unduly hamper the market; and conduct research to demonstrate its contribution to the U.K. economy as well as why London's position in the world of insurance may be dimming, he said.
Mr. Matcham said a better understanding is needed of why certain business does not come to London. While it's important for the market to be more efficient, he said its nature makes improving efficiency tricky.
Coverage via London tends to be big-ticket business that requires many underwriters, and such processes are not easy to reform, Mr. Matcham said, while still supporting the London Market Group's new focus.
In a speech to the Insurance Institute of London at Lloyd's Old Library last week, Aon P.L.C. CEO Greg Case said Lloyd's and the London market “are more important than ever.” He also said London has “no equal as a city” for its concentration of insurance market partners and expertise.
For some brokers, establishing a consortium of Lloyd's underwriters is becoming attractive, since it removes brokers' need to visit numerous syndicates to secure sometimes small line sizes of cover and allows smaller players to remain relevant, Mr. Savage said.
“Big is not always beautiful,” Mr. Savage said in saying the Lloyd's market always will need small, niche players.
Members of one such consortium said several syndicates have worked together to provide meaningful capacity and specialist expertise. Last May, four major Lloyd's construction underwriters — Beazley P.L.C., Canopius Group Ltd., Hardy Underwriting (Bermuda) Ltd. and Talbot Underwriting Ltd. — formed a consortium.
Colin Rose, head of construction and engineering at Beazley, said Beazley is a major construction underwriter at Lloyd's, but its capacity was limited and left it unable to compete against larger non-Lloyd's underwriters for certain risks, and fellow consortium members were in a similar position.
The consortium structure gives brokers access to capacity and expertise without having to deal directly with four different syndicates, said David Turner, construction global practice leader at Talbot. That leads to a “simpler negotiation process,” he said.