By LEN WILKINS
At this time of year most of London’s insurance staff is on holiday. However, there usually are high-level planning teams of brokers and insurers looking at the forthcoming renewal season and preparing their business plans for 2022. At the same time, Lloyd’s managing agents are putting together their submissions to Lloyd’s for approval of next year’s underwriting.
Once the main focus is decided, the underwriting plans need augmenting with detail and figures. The concern for London’s management is whether or not the required staff will be in the office to augment the plans.
The U.K. government is continuing its flexible working policy which most staff interpret as “work from home where possible.” The government rules are that all employees have the right to request flexible working, and employers must deal with requests in a reasonable manner. If employees believe employers are unreasonable, employees may take employers to an industrial tribunal with potentially thousands of dollars being awarded.
London is worried about the potential threat to its position as a leading world insurance and reinsurance market. If other markets get their staffs back more quickly, London could be in trouble. Even though underwriting can be done remotely, the plans and the number crunching can’t. As a market, London often takes too long to react to problems, and some worry that there is no consensus on how to solve this one.
London has an additional problem in that nearly all the London staff of Lloyd’s managing agents, Lloyd’s brokers and London based international insurers don’t live in central London. Many live long distances from the City, and the thought of returning to a rail journey of an hour to an hour and a half doesn’t appeal to them. In contrast, Bermuda is just 21 miles long.
London staff got used to working from home, and coming to the office means the loss of leisure time and adds the considerable cost of travel, which can be in the region of $7,000 annually.
For senior executives the size of their income makes these problems more acceptable; however, to the market’s foot soldiers, who man the backroom and produce statistics, going back to the office isn’t attractive.
One leading U.K. insurer found that its London office is struggling to get its staff back to work, while its other U.K. offices have less of a problem. Since lockdown restrictions were eased, other areas show greater signs of life than London’s main financial district.
London is looking for options to get workers back to the office; one option is more money, and a recent survey suggested if employers paid travel costs this would help. An initial mix of working from home for two days of the week and in the office for three is the more likely outcome.
Rate rises cooling
Aon’s latest guide to the global and European commercial insurance markets indicates that, while business remains challenging for buyers, rate increases are decelerating. As usual, it’s because new capacity entered the market, smelling the chance of profit.
Aon said prices continue to harden to varying degrees across global markets and lines, depending on location in the world. Aon found average pricing up between 11 and 30 percent in Europe, the Middle East, Africa, North America and Asia-Pacific during the second quarter. Rates were up between one and 10 percent in Latin America. Deductibles are trending upward to reduce price increases, and coverages are restricted with mandated clarifications and exclusions for silent cyber, infectious disease and contingent business interruption.
The difference between now and earlier in the year is that new capacity is flowing into the market and slowing price rises. Aon says that global capacity is tight, but is sufficient for all but the largest and most complex placements. The market will be worried if the trend continues because rates could fall in the 2021/2022 renewal season.
At the global level, underwriting remains aggressive since information requests continue to be more detailed and rigorous, which makes life more difficult for brokers. At the same time, insurers’ decision making is more centralized, according to Aon.
Lloyd’s broker Gallagher concurs with Aon.
- Patrick Gallagher Jr, chairman, president and CEO of the broker, said, “We too see the global P&C environment remaining difficult for our clients, and that is likely to remain for the foreseeable future. Looking forward, it feels that the current renewal environment will persist for some time,”
Gallagher added that premiums are still rising across nearly all geographies, but the rate of increase has slowed a bit. However, he believes buyers are likely to face more pain before things improve. He said, “There just doesn’t seem to be any appetite for cutting. Now, rate of increase is down, but I’m not seeing people say, ‘Oh gosh, we’ve got this thing right. Let’s open the flood gates.’”
First female deputy chair
Lloyd’s annual round of musical chairs occurred recently with the appointment of two new deputies. For Vicky Carter, it was a particularly memorable occasion because she became the first female deputy chair of Lloyd’s, effective Sept. 1.
Lloyd’s committed to have 35 percent female representation in leadership positions across the Lloyd’s market by Dec. 31, 2023. Lloyd’s also set a specific target for the council of having 33 percent of its members being female or from a Black, Asian and minority ethnic background by the end of 2023.
The Lloyd’s boardroom will not be a new experience for Carter who has been an elected member of the Lloyd’s Council since February 2019. She has worked in the Lloyd’s market for 40 years after starting her career in medicine before moving to reinsurance broking in 1980. She joined Guy Carpenter in 2010 as vice chairman of International Operations and in 2018 became chairman of Global Capital Solutions, International. She holds positions on the company’s executive committee and board. In addition, she chairs Lloyd’s Charities Trust and Lloyd’s Community Programme and is a Trustee of the Sick Children’s Trust. Carter is a Freeman of the City of London and a Liveryman of The Worshipful Company of Insurers.
Mark Sedwill, aka Baron Sedwill of Sherborne KCMG FRGS, replaces Andy Haste as the senior independent Lloyd’s director and will be a deputy chair of Lloyd’s.
The appointment of independent directors came about following the Lloyd’s Act of 1982. There are nine nominated members, including the CEO, and their appointment is confirmed by the governor of the Bank of England.
Lord Sedwill’s appointment also was approved by the prime minister on advice from the Advisory Committee on Business Appointments and remains subject to the approval of the Prudential Regulation Authority and the Financial Conduct Authority.
No Olympic gold for insurers
According to Fitch, London insurers will pick up a $300 million to $400 million tab from the Olympics. This would normally make insurers grit their teeth, but they are probably delighted that the event was not cancelled which would have left them with a loss that Fitch estimates could have topped $2.5 billion.
The loss insurers will pick up relates to Japan’s decision to bar spectators from the Olympics and to payments for ticket and hospitality refunds.
If the Olympics had been cancelled, the payout would have been the largest insured loss ever for a single event cancellation.
With the Paris Olympics three years away, insurers and reinsurers will have a rethink on the cover they provide and the price they charge.
Government reinsures event coverage
Since the restriction over Covid began to be lifted, Lloyd’s and London insurers have been pressed to sell event cover. It seems shortsighted for policyholders to expect an industry to pay out millions of dollars one year and sell the same product with the same cover for the same price the next year.
Insurers worldwide have stopped selling full event cover, even though cover for cancellation due to causes other than a pandemic still has been available. With the uncertainty of reinsurance cover this year, there were mass cancellations of festivals and concerts in the U.K.
Pressure from organizers has led to a U.K. government scheme as part of its Plan for Jobs initiative. The government partnered with Lloyd’s to deliver a $1 billion Live Events Reinsurance Scheme, in which the government acts as a reinsurer.
The scheme will support live events across the U.K. that are open to the general public and cover costs incurred if the event is cancelled due to government Covid restrictions, while insurers pick up claims for non-Covid cancellation. There is no limit on loss per event.
Event insurance has been a major selling item in the Lloyd’s market, so if the terms are right, and the government acts as a reinsurer, Lloyd’s syndicates will return to the event market. Syndicates, such as Arch, Beazley, Hiscox and Munich Re, support the scheme, which begins on Sept. 1.
China increases market share
The news that China continues to take a growing share of the global insurance market has Lloyd’s attention. China now has 10.5 percent of the market, according to Swiss Re, and is one of the three largest insurance markets in the world along with the U.S. and Japan.
Swiss Re believes China’s economic growth is due to 70 percent of the population being inoculated, which enabled the country to recover earlier from Covid and allowed economic activity to increase quicker than in most countries.
Bronek Masojada to retire
At the end of this year Bronek Masojada, CEO of Hiscox, will pick up his underwriting pen and leave full time insurance.
Aki Hussain, Hiscox’s group chief financial officer, will replace Masojada.
Masojada has led Hiscox for almost 30 years during which the group grew and was transformed into a leading diversified specialist insurer. When he came from McKinsey and Company, Hiscox was a Lloyd’s underwriter, with fewer than 200 people in one location. Now, Hiscox has a market cap of £150 million. Hiscox built a digital insurance business in the U.K., U.S. and Europe, which now accounts for nearly $600 million of gross written premiums.
Masojada pushed for market modernization throughout his career and served as deputy chairman of Lloyd’s. He is a past president of the Insurance Institute of London, and master of the Worshipful Company of Insurers. He has been on the board of the Association of British Insurers since 2012 and is currently alderman for the Ward of Billingsgate in the City of London.
London has much to thank Masojada for. He was acting as chairman of Placing Platform Limited, which is the London market’s electronic placing platform that kept the market operating during the various government lockdowns.
Hiscox announced its first half results for 2021, reporting a pretax profit of $133.4 million which compares to a loss of $138.9 million for the first half of 2020. Gross written premium grew by 8.5 percent in the first six months of 2021, moving from $2,235.5 million last year to stand at $2,426.2 million this year. Meanwhile, net premiums earned increased from $1,328.2 million in 2020 to $1,423.1 million at the end of June 2021. The group’s combined ratio moved from 114.6 percent last year to 93.1 percent for 2021’s first half.
What’s happening to Willis Re?
One of the fallouts from the collapse of the Aon Willis merger is the future of Willis’s reinsurance arm, Willis Re. To get the merger through in Europe it was necessary to sell the company to rival broker Arthur J. Gallagher, but with the merger off, the market wonders what the future is for Willis Re. Gallagher had agreed to buy it and other assets for about $3.6 billion.
Currently, Gallagher believes the deal is still on, but Willis Towers Watson is understood to be considering its options. With three brokers, including Gallagher, controlling the majority of the reinsurance broking market, WTW will not want to let Willis Re slip from its grip. Market sources suggest that the deal will still go ahead but wonder what Gallagher is getting for its money. Apparently, members of Willis Re’s staff have looked at their potential future and jumped ship.
One-third of Covid BI claims paid in full
The Financial Conduct Authority recently updated its figures on the payment of Covid BI claims. The figures do not look good for insurers, which accepted or are considering 46,854 claims, with only 34 percent, or 16,159, paid in full. The figures do not include claims declined by insurers that may be disputed by policyholders and excludes contracts of large risks.
Aaron Le Marquer, a partner at Fenchurch Law, warned that litigation is emerging as insurers and policyholders dispute the quantum of claims that are being negotiated. The main contention over payments is how the aggregation of claims is calculated and how the deductions are made for government support and loss of rent claims.
Other issues that Le Marquer believes will be tested in the courts include disease at the premises clauses, prevention-of-access claims, loss aggregation issues, claims adjustment for government support such as furlough and loss of rent.
Even though the number of Covid victims is reducing, it seems that potential litigation isn’t