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

“The Lloyd’s market continues to look robust,” says Hugo Crawley, chairman of BMS Group broking board in London.

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

But the significant cat payouts—“which have impacted quite a number of the syndicates,” Crawley observes—have led to reinsurers trying to recoup their losses from a worldwide reinsurance client base that is also reeling from the effects of a global slowdown.

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

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

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

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

JAPAN: COULD HAVE BEEN WORSE

Eltham observes that losses from Japan could have been much worse, but because of the structure of the reinsurance market in the area where the tsunami, quake and reactor incidents occurred, a good deal of the losses remained contained within the Japanese market.

In addition, he says, the timing of Japanese treaty renewals was ultimately “quite favorable in that the Japanese have paid increases on their treaties.”

While the increases and premiums are nowhere near the losses being paid out, because of the quick repositioning in pricing, “it is not as disastrous as it would have been had the London markets had to ride out the entire 12 months,” Eltham adds. “The losses occurred in February, and renewals were for the most part April 1.”

Elsewhere, reinsurance rates have been increasing from major events such as the Chilean earthquake and catastrophes in Australia and New Zealand.

IMPACT OF U.S. CATASTROPHES

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

“The tornadoes hit the U.S. retentions much harder, relative to what 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 share of wildfires in 2011, “but on a relative scale, the U.S. has picked them up more than London,” he notes. “Domestic carriers have retained a larger share of those losses.”

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

TREND: BUYERS RETURNING TO LONDON

Lately, Eltham says, London orders are beginning to increase again.

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

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

“Then you get those who have been absolutely hit by RMS version 11, and their prices have gone up,” he says. “They are in wind-catastrophe areas that RMS has pushed up, and they are no longer a natural fit for the domestic market, so they have been driven 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., which he says “is doing a really good job” in looking at its risks. “They’re going through identification, qualification and now the quantification phase of what they’ve got.”

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

Eltham cites the example of one risk manager of a multinational company who identified the potential risks of its supply-chain interdependencies with a particular country, and quadrupled the amount of limits they determined they need to buy. “It was a high limit anyway, so they have bought as much as they can buy,” he says. “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 risk managers take a deeper stock of their global exposures.

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

Special Reports /

London Market Weathers International, U.S. Storms

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