As the renewals season gets underway, Sarah Goddard looks at the current state of the London insurance market.

In recent times, the London market has appeared somewhat quieter than its two main reinsurance rivals, the US and Bermuda. For US companies, the continuing problems with reserve levels for old year problems such as asbestos and more recent issues such as D&O liabilities have kept them high on the radar screen. Bermuda has grown massively as a re/insurance centre, with both the formation of new companies on the island and successful capital-raising initiatives by its older encumbents. Yet in all this time, London has itself been enjoying a renaissance of fortunes; several Lloyd's operations have set up Bermuda-based offshoots, or successfully raised new capital themselves, while almost all the post-9/11 start-ups have a London market presence. Endurance Worldwide, part of Bermuda-based Endurance Specialty Holdings, now has about 35 people operating out of offices in the London Underwriting Centre, and writes primarily European but also worldwide (ex-US) business through its London operations. For Mark Boucher, CEO of Endurance Worldwide, London's strength lies in its entrepreneurship and marketing expertise, and business is flowing to London "that hasn't been seen before or that may not have been seen here for some time." For Endurance and its peers, the lack of legacy issues has proved highly attractive to new business, particularly in the current climate of concern over counterparty risk. On the downside for London, the market still faces challenges in service levels, such as in claims payments and premium reconciliations, and past-year problems similar to the US market.

Significant returnsEven so, times are good in London. PricewaterhouseCoopers issued a report on the London market in September noting its "significant return to profitability and a replenishment of capital lost", though it does warn that some London market players may not have got their houses together to properly weather what it sees as the coming downturn in rates. "A softening in rates will put the operational performance of the London insurance market under the spotlight, in particular its ability to deliver the consistent returns across the cycle demanded by a new breed of capital providers," said PwC partner Paul Delbridge. "Insurers will need to concentrate on the core operational capabilities and controls required to deliver a genuine underwriting profit. Many have already recognised the need to exit lines of business or to reduce volumes if adequate premium rates cannot be achieved."Des Fogarty, general manager in the treaty division of QBE Re, agreed that the London market has thrived in the last year or two. It is, he said, the international centre for reinsurance and retro business. "London dominates" in these lines, he said. This year's renewals season is proving busy, but there are signs of certain lines beginning to plateau or even seeing a slight downturn in premiums. At the recent Baden Baden meeting, Tony Jose, a director with broker Heath Lambert, said he was beginning to see some pressure on prices, particularly in the property catastrophe lines where London has played catch-up with its competitors on the modeling side of the business. As a rule of thumb, brokers were reporting drops of around 10% in premium rates for this type of business, and QBE Re's Mr Fogarty concurred that this will probably be the case for the renewals. "The expectation on the property side is that we will probably see an easing of rates across the board, but it will be greater in certain territories," he said. European business may see some softening, "but it won't be significant," he said. "(Rating levels) withstood last year because a lot of reinsurers were unwilling to support certain prices," and, at least at this point in the renewals discussions, it would appear that underwriter discipline is being maintained. "Underwriters have to be much more focused" due to losses and the lack of return from the investment markets, commented Mr Fogarty. Casualty business is remaining high, he said, and there is general feeling that some of the more `troublesome' lines such as US D&O and E&O (the lack of which at decent rates was blamed by Lloyd's broker Bradstock as the reason for its decision to stop trading) will continue to see an upwards trend into 2004. Mr Fogarty's take on 2004 is that it will be "probably overall slightly harder than 2003," with the stabilisation in property counterbalanced by the continued hardening in long-tail lines.Within the market, he said, changes in the regime at Lloyd's - in particular the `franchise board' under Rolf Tolle which scrutinises syndicate performance - have breathed new life into the brand, in turn raising the London market profile again.Indeed, Lloyd's has been writing against record capacity of £14.25bn for the 2003 year of account, but the demise of Goshawk's Lloyd's operations at the end of last month due, according to Goshawk, to the failure of no win, no fee compensation firm The Accident Group and other losses such as this year's space shuttle disaster, show that even in the healthiest of market conditions, there will be losers as well as winners.By Sarah GoddardSarah Goddard is the editor of Global Reinsurance.