New syndicate launch flies in the face of calls to “tighten belts”

Announcing Lloyd’s results for 2007, chairman Lord Levene and CEO Richard Ward warned insurers to manage the cycle and cut back on capacity where necessary.

Despite reporting a £3.8bn profit, the lack of significant catastrophe losses in 2007 has put renewed pressure on premium rates to come down.

“The need to exercise underwriting discipline and maintain a focus on underwriting for profit rather than market share remains essential,” said Levene.

Lloyd’s chief executive Richard Ward added: “Last year’s softening market conditions reinforced, once again, the need for a clear strategy to enable the market to maintain discipline and strength in the face of increasing competition.

“Good cycle management is absolutely critical – we are already seeing signs of softening across many lines of business.”

The message is loud and clear. The market should seek to manage the cycle by maintaining price discipline and not flooding Lloyd’s with new capacity at a time when there is already plenty of competition.

Aspen’s decision to launch a syndicate at Lloyd’s therefore seems oddly timed.

“Last year's softening market conditions reinforced the need for a clear strategy to enable the market to maintain discipline and strength

Richard Ward

Syndicate 4711 will focus on providing coverage for energy, hull, marine liability, transportation related liability, aviation and certain specialty reinsurance lines.

In 2008, it plans to write approximately $100m of its forecast GWP (gross written premiums).

The competitive market and steady softening of rates does not appear to have dampened the insurer’s enthusiasm for this new venture.

“The establishment of a presence at Lloyd’s is a key strategic objective for Aspen as it provides a major enhancement to our multi-platform capability as we continue to develop our business,” said Aspen CEO Chris O’Kane.

This flies in the face of commonly agreed market wisdom that as prices fall, capacity should be withdrawn. Willis Re’s April renewals report – “Plenty of capacity, plenty of capital” – confirmed a continuation of the pricing declines seen at the 1 January 2008 renewals.

“Surplus and capacity remain abundant at the present time, as evidenced by some of the large Lloyd’s syndicates’ recent expressions of disappointment that the overall Lloyd’s market capacity for 2008 did not reduce more substantially,” said the report.

Speaking at the World Insurance Forum in Dubai in March, Lord Levene hit back at those who had questioned why the market was allowing in so many new entrants.

“If we start restricting people coming in we will fall foul of the competition laws

Lord Levene

“If we start restricting people coming in we will fall foul of the competition laws,” said Levene.

“All we can do is try to get it under some reasonable control and ensure shareholders get a reasonable return.”

The capacity of the Lloyd’s insurance market has reduced in 2008 to £15.95bn. This represents a decrease of 0.9% on 2007 opening capacity of £16.1bn.

Aspen is not the only insurer to open a new syndicate at Lloyd’s in recent months. In all, nine new ventures are in operation this year, the biggest increase in at least 15 years.

CV Starr, Goldman Sachs, HCC, Ark, Bank of America, Chaucer and Montpelier Re all backed new ventures at Lloyd’s in the past 12 months. Other insurers have acquired a Lloyd’s presence through M&A.

Last year Validus bought Talbot, Ariel bought Lloyd’s insurer Atrium and Tokio Marine bought Kiln. Argo Group has just confirmed its buyout of Heritage Underwriting Agency.