London Rides Hard Market Wave

However, she cautioned that rising income and positive cash flow should not distract IUA members "from ongoing efforts to introduce efficiency reforms." This is a reference to the importance of implementing the London Market Principles initiative aimed at streamlining processes and making London a faster and more cost-effective marketplace.

IUA member companies represent almost half the premium income handled by the London market. Precise figures for the London market as a whole are hard to produce due to the number of organizations involved and the different methods of collating and reporting data. One estimate by International Financial Services London put premium income at a record $44.6 billion in 2002 (under the March 16 exchange rate of $1.81 per pound the benchmark used in this article).

Lloyd's, whose insurance syndicates make up most of the rest of the London market, is due to report its latest results early next month. In 2002 (the most recent figures available), Lloyd's reported gross premium income of $29.4 billion, against claims of $18.3 billion.

Premiums shown in the IUAs underwriting statistics are net of commission and brokerage fees. Moreover, the IUA statistics are based on only about half the premium volume collected by its 40-plus full members, many of which are domiciled outside the United Kingdom. These partial figures show a positive cash flow in 2003 of more than $4.5 billion, up $907 million from 2002 and 10 times higher than that for 2001.

The rise in the IUA's 2003 business volume was achieved despite a growing trend within domestic markets to retain some of the complex risks traditionally placed in London, said IUA's director of knowledge management, Pam Byrnes.

"The boundaries are changing in that we are seeing that internationally the markets are retaining a higher level of insurance internally before they put it on to the London market for large risk sharing or reinsurance," she said.

However, she added that London's flexibility in responding to the emergence of new types of risk meant that it was not losing ground overall.

"I wouldn't say that London has fewer growth opportunities, because it is still able to look at new risks and fit a product to those new risks," she said, citing the development in London of "e-crime" insurance.

The IUA's statistics are based on data from policies and claims processed by the Ins-sure bureau, a back-office service provider. Approximately half of all London market business transacted by IUA members flows through Ins-sure. Consequently, although not comprehensive, these figures provide the best measure of premiums and claims currently available.

In the longer term, according to Ms. Byrnes, the IUA hopes "to start collecting information from our members by voluntary survey. But at the moment, the only way we can collect any statistical information that we know is correct is by using the bureau information."

Among the projected improvements are the collection of data on the development of outstanding claims and a breakdown of non-marine statistics into classes such as property, liability, pecuniary loss, etc. However, this will take time, Ms. Byrnes noted, since at least four years' data are needed to produce meaningful results.

Last year, the association improved the information flow in response to demand from members by issuing statistics on a quarterly basis and including non-marine data for the first time.

Separate IUA figures for business written by underwriting year show the development of each year's business in terms of the premiums and claims for contracts which began in that year. The association notes that premiums are mostly paid within two to three years of the inception of a contract, but claims can accumulate for many years afterwards.

Aviation premiums so far processed for 2003 total $932 million. This is lower than the exceptional figure of $1.05 billion in 2002, when premiums were boosted by one-off Sept. 11-related factors, but are significantly higher than the comparable 2001 figure of $564.4 million. Aviation claims received last year declined in half to 34 million from $68.1 million in 2001.

Marine hull premiums increased to $188.7 million in 2003 from $152.9 million, $159.5 million and $120.0 million for the previous three years' comparable figures. The association commented that "the sector may be beginning to return to more satisfactory underwriting results provided premium improvements are sustained."

At $98.8 million, energy premiums were slightly down from 2002, but were up on the market's 2000 and 2001 position.

Non-marine premiums processed by Ins-sure for IUA members last year, excluding excess-of-loss coverage, increased to $2.5 billion. This compares with $2.1 billion at the same stage for 2002 and $2.06 billion for 2001.

For further information, see www.wee.ius.co.uk.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, March 19, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.