For more than a decade, Global Reinsurance has cast its eye over the international re/insurance market, providing in-depth analysis and informed commentary – frequently from the people moving the market forward. Over that period of time, it has become increasingly clear that not one market participant can afford to sit on its laurels; some of the most high profile names in the business at the beginning of the last decade have fallen off the radar screen, a few of them into deep pits of long-tail liability run-off.
Global Reinsurance this month looks at the metamorphosis taking place in the London market, sweeping changes which promise to fundamentally alter the way the majority of business is transacted over the next few years. Although there is little doubt that many of the complex and large deals placed in London cannot be closed by technology alone, there is a growing recognition that IT-enabled back office processes and support functions can and will both increase efficiency and slash the costs of doing business.
For London to survive as one of the world's largest re/insurance markets, it needs to grasp the nettle of change. Painful though the process might be, any flinching now will open a door for more efficient, hungrier players to grab global market share. The IUA/Lloyd's Forum has set up to present a unified market face to the world. Though many see Lloyd's still as the fulcrum of London, it is only with both arms of the market working in unison that any substantial change will be achieved. Whether the commitment of the market grandees filters down and is bought into by the individual market businesses remains to be seen, but the Forum is working on initiatives such as the joint LPC/LPSO bureau that promise to appeal to the bottom line.
Alongside the Forum strategy, the Lloyd's Insurance Brokers Committee is no more, now supplanted by the London Insurance Market Brokers Committee, headed by Ross McKenzie of Aon and reflecting Lloyd's move at the beginning of this year to throw its doors open to GISC-regulated brokers meeting certain additional standards. On the other side of the slip, the Lloyd's underwriters' market associations have also unified under a single umbrella, the Lloyd's Market Association.
Lloyd's remains a pull for international re/insurance organisations. During the course of the past year, a number of overseas businesses have placed stakes in the market, including French reinsurer Sorema, and more recently, Labuan Re. With this year promising to be the last for the premium levy used to fund Lloyd's Reconstruction & Renewal programme, the attraction of lower costs must be a factor.
But it should not be forgotten that just because the post-R&R Lloyd's has no tail, run-off is no longer an issue in London. In this edition of Global Reinsurance, we take a look at the challenge facing the run-off market, by many accounts larger than the live market. Managing run-off remains a major challenges, with long-tail liabilities continuing to tax the minds of specialists. Equitas' recent announcement that it was upping its asbestos-related reserves came as a timely reminder that no amount of actuarial modelling will give the perfect answer for liabilities, and the threat of an unidentified latent exposure lurking around the next corner – or in the next court room – remains very real.
And the tough market conditions of recent years are also playing into the hands of run-off managers. Reliance Europe's descent into insolvency may be the start of a spate of failures, though the stronger capitalisation of current players in London compared to those trading in the dark days of the late 1980s and early 1990s may well save London from the wholesale collapses seen in the market's darkest days. The fact that many of the re/insurers operating in the London Underwriting Centre or in the underwriting room at Lloyd's are backed by highly-rated strong parent companies with sound reinsurance experience could well be to London's benefit. Even so, there's little doubt that underwriting results are looking dire – particularly at Lloyd's, where analyst Chatset is predicting losses in excess of £2bn for the 1998 to 2000 years of account. In addition, the dismal performance of the stock markets over the course of last year will do nothing to alleviate the pain of the hideous loss ratios promising to be revealed when last year's results are published.
Nevertheless, it does appear the turn has come. Lothar and Martin, the two storms that ripped across continental Europe in December 1999, occurred too late to make an impact on the 2000 renewals, but their echoes resounded through the following year and few doubt the market has bottomed. Whether this provides an opportunity for ART providers to step into the breach of shrinking capacity remains to be seen, but in the meantime, London is ringing the changes and appears to be making the most of the hardening market.
Sarah Goddard is editor of Global Reinsurance.