2019 has been a year in which we have seen significant and sustained changes in the London Market.
The Decile 10 review at Lloyd’s in 2018 was the most high-profile example of insurance businesses reviewing their operations in order to ensure that they are sustainable in the long term. In many cases it meant underwriting businesses reviewing their appetite for certain classes of business going forward with either through reduction of line size or a wholesale withdrawal. However, the trend towards greater underwriting discipline has not just been confined to Lloyd’s but has spread across the rest of the London Market and has, in some quarters, been seen as a sign of market decline. This concern has been exacerbated by Brexit and the how the models adopted by brokers and underwriters will deliver in the case of a no deal exit.
But evolution is a good thing. We should see change as a natural part of how the market develops, not as an existential threat. The London insurance market remains the world’s largest centre for commercial and speciality risk, controlling around $91 billion of gross written premium. In 2015, it increased its share of global specialty markets (Marine, Energy and Aviation) from 38.0% to 40.2% by outperforming the declining global market.
We should see change as a natural part of how the market develops, not as an existential threat.
As a subscription market, it has lasted for over 300 years because it serves a number of very useful purposes. The first is it delivers specialist expertise. It is the co-location of so many smart people that sets the market apart. Specialists in very specific types of insurance, such as marine hull, satellite and cyber, all operate from London. This high concentration of specialty insurance talent is not just in underwriting, but also claims, actuarial science, catastrophe modelling and pricing modelling. All vital aspects of the value chain. Like the rest of the global insurance industry we need to protect against any “brain drain” by investing in skills required to make London understand new risks and deliver solutions as efficiently and effectively as possible.
The fact that the market is predicated on the sharing of risk is also vital to clients. The values at risk which the market is asked to insure continue to increase, as does the complexity of those risks. That the market can deliver the capacity required by syndicating those risks, combined with its talent, really keeps it relevant. The ability to collaborate in the discussions around tricky-to-place or more esoteric risks also means that they can be written more readily. The fact that syndicates and insurers compete fiercely for risks keeps pricing keen.
For us as a global insurer, London plays an important part in our offering. Whilst it is just one of many different and interesting markets, as an ecosystem it is unique – as the facts and stats above illustrate. We can all agree that the world is facing unprecedented change and opportunity, and progress goes hand in hand with risk. Having this dynamic ecosystem and its deep reserves of capital makes helping our clients to face that future with confidence a great deal easier - whether that is managing complex and challenging risks or getting them back on their feet when disaster strikes. It is a place and an offering that is valuable to preserve.
Anthony Baldwin is AIG's CEO-UK.
This article first appeared in Insurance Post.