Lloyd's Capacity Still On The Rise
NU Online News Service, July 30, 11:56 a.m. EST?Demand to put new capital into Lloyd's of London is triggering one of the most significant periods of mid-year growth for the London-based insurance market, according to one of its leading executives.
Julian James, director of worldwide markets at Lloyd's, said Lloyd's syndicates are heavily engaged in capital raising programs to take advantage of an insurance market that, in terms of pricing, is at its most attractive for underwriters in a decade.
At the same time, he included a word of caution against excess capital that could soften prices.
Lloyd's market capacity–the volume of insurance premiums that can be accepted–has already risen from $19.1 billion at the start of this year to a new mid-year high of $19.6 billion, Mr. James noted. He commented in a speech this past weekend to agents and insurers in Whistler, Canada at the Western States Surplus Lines conference.
In addition, $671 million of Qualifying Quota Share arrangements–a type of reinsurance contract–have been approved to further expand underwriting capacity, with over $784 million more awaiting approval, Lloyd's noted. Much of this QQS capacity has come from Bermudan reinsurers and major European firms, Lloyd's said.
Additional capital raising could boost Lloyd's basic capacity as high as $20.2 billion by year-end, without taking QQS arrangements into account, according to Mr. James.
He pointed out, however, that these requests to increase capacity are subject to approval by Lloyd's, indicating that Lloyd's would not necessarily give the green light to unlimited capital increases because of concern that it could fuel a premature return to a soft market.
"As stock markets around the world continue to underperform, insurance premiums are rising and are expected to provide positive returns for several years to come," said Mr. James. "This demonstrates the contra-cyclical nature of insurance markets like Lloyd's."
However, he added, "it is not our intention to allow Lloyd's to be flooded with so much capital that a soft market is created. Indeed, we are very aware of this possibility."
He said that "these strong trading conditions, combined with our program of radical but sensible modernization proposals, are creating a modern, transparent and profitable business fit for the future."
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