Even after absorbing at least its fair share of internationalcatastrophe losses, the London market has come out well positionedin terms of risk appetite, experts contend.

“The Lloyd’s market continues tolook robust,” says Hugo Crawley, chairman of BMS Group brokingboard in London.

Overall, “It’s shaping up to be a good time for London,” agreesJohn Eltham, head of North American brokerage business forLondon-based Miller Insurance Services Ltd.

But the significant cat payouts—“which have impacted quite anumber of the syndicates,” Crawley observes—have led to reinsurerstrying to recoup their losses from a worldwide reinsurance clientbase that is also reeling from the effects of a globalslowdown.

“So we’ve got the age-old issue,” Crawley says, that clients whohaven’t experienced any catastrophe losses “are still being pushedon rate—that everybody should pay increases.”

The situation makes for “quite a challenging time for brokersand getting the right job done for the clients,” he adds.

Also adding drama to this buyer-seller dynamic are the changesin Risk Management Solutions’ Version 11 of the U.S. hurricanemodel, which means that “a number of clients are buyingsignificantly more limit in the marketplace,” Crawley says.

The retrocessional market saw losses, creating a shortage ofcapacity. As a result, there is “quite a lot of activity in thecapital markets,” says Simon Clutterbuck, a Director of BMSIntermediaries Ltd and BMS Re Ltd. The capital markets have beensupplying potential capacity for 2012 to the retro market,delivered through sidecar vehicles, he notes. Some are being donein conjunction with existing reinsurance companies—many of themBermuda companies—and some through direct-controlled vehicles.

JAPAN: COULD HAVE BEEN WORSE

Eltham observes that losses from Japan could have been muchworse, but because of the structure of the reinsurance market inthe area where the tsunami, quake and reactor incidents occurred, agood deal of the losses remained contained within the Japanesemarket.

In addition, he says, the timing of Japanese treaty renewals wasultimately “quite favorable in that the Japanese have paidincreases on their treaties.”

While the increases and premiums are nowhere near the lossesbeing paid out, because of the quick repositioning in pricing, “itis not as disastrous as it would have been had the London marketshad to ride out the entire 12 months,” Eltham adds. “The lossesoccurred in February, and renewals were for the most part April1.”

Elsewhere, reinsurance rates have been increasing from majorevents such as the Chilean earthquake and catastrophes in Australiaand New Zealand.

IMPACT OF U.S.CATASTROPHES

While the first six months of 2011 saw a surge in cat losses inthe U.S. market, Lloyd’s had relatively less exposure on theseclaims in comparison to the large American carriers.

“The tornadoes hit the U.S. retentions much harder, relative towhat was being reinsured out into the Lloyd’s market,” Eltham says.“Lloyd’s has weathered that far better.”

The U.S. has also seen its shareof wildfires in 2011, “but on a relative scale, the U.S. has pickedthem up more than London,” he notes. “Domestic carriers haveretained a larger share of those losses.”

“This has been a disproportionate year in terms of U.S. versusLloyd’s,” says Eltham.

TREND: BUYERS RETURNING TO LONDON

Lately, Eltham says, London orders are beginning to increaseagain.

“It looks as if strategically, buyers are saying, ‘in London,the security is good, the claims payments have improved in terms ofspeed’—all the reforms that Lloyd’s is trying to introduce.”

Another trend, Eltham says, are the opportunistic buyers who arebeginning to shop around more, which is also leading to increasingactivity levels in London.

“Then you get those who have been absolutely hit by RMS version11, and their prices have gone up,” he says. “They are inwind-catastrophe areas that RMS has pushed up, and they are nolonger a natural fit for the domestic market, so they have beendriven to London.”

So far this RMS issue is a burgeoning trend; “not a stampede,but pockets and careful strategic moves,” he adds.

STEPPED-UP RISK-MANAGEMENT STRATEGIES

Eltham credits the risk-management community in the U.S., whichhe says “is doing a really good job” in looking at its risks.“They’re going through identification, qualification and now thequantification phase of what they’ve got.”

The Japanese quake really grabbed people’s attention. “Even ifthey haven’t suffered direct losses from that event, it has been awake-up call [for risk managers],” he says. “Going through aquantification process takes time. They are beginning to ID wheretheir risks are.”

Eltham cites the example of one risk manager of a multinationalcompany who identified the potential risks of its supply-chaininterdependencies with a particular country, and quadrupled theamount of limits they determined they need to buy. “It was a highlimit anyway, so they have bought as much as they can buy,” hesays. “They realized they were dramatically underinsured.

“This is a sophisticated buyer, and they are not in isolation,”he notes. “It’s quite a dynamic market at the moment” as riskmanagers take a deeper stock of their global exposures.

Some of the decisions, Eltham adds, “are not what you would seein a stereotypical renewal program. There is more informedpurchasing going on today.”