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Alternative capital keeps pressure on insurers in London market: A.M. Best

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Alternative capital keeps pressure on insurers in London market: A.M. Best

Insurers in the London market are facing a difficult trading environment as competition from alternative sources of capital threatens their market share, according to a briefing report released Tuesday by A.M. Best Co. Inc.

According to “London Market Insurers Look to Leverage Specialist Expertise,” the current intense competition is prompting insurers in the London market to seek to protect their market shares by offering terms and conditions that are difficult for capital market capacity providers to replicate.

“These include multiyear deals, reinstatements or simply wider coverage,” the report noted.

“A.M. Best is concerned that a relaxation in terms and conditions will adversely affect results in the London market over the next few years and is closely monitoring how individual companies manage any subsequent increase in exposure,” it said.

According to the report, a trend on the part of brokers to use smaller panels of insurers with expertise in particular lines of business also is having an effect on the London market.

“Following markets that have little to contribute beyond a small amount of capacity are falling off the bottom of the underwriting slip,” it said.

“In contrast, those companies that have the expertise to offer tailored solutions and superior analytical services have a competitive advantage,” it noted.

The report noted that some insurers have formed relationships with third-party capital providers that allow those capital providers access to business at Lloyd's of London through special-purpose syndicates and that give the insurers the chance to use their expertise and increase line sizes.

Overall, the report noted, a lack of large catastrophe claims in the first half of the year has meant that London market insurers' capital strength has been maintained.

The results that London market insurers post for 2014 largely will depend upon the frequency and severity of large losses, the report said.

“Strong technical discipline, as well as prudent management of capital and aggregate exposures, will determine which companies are able to absorb any catastrophe losses and maintain capital strength,” it said.

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