Tuesday, 11 March 2008

Complaints about Capacity at Lloyd's

Advisen Front Page News Europe ran a story today entitled "Some of Lloyd's Biggest Underwriters are Crying Foul Over Bloated Capacity" which piqued my interest.

The story by AM Best details the soft market in commercial lines insurance pricing, which I have covered here, but what interested me was the public statements by the heads of two of the largest Lloyd's Managing Agents.

The background is that Lloyd's total capacity is forecast to be down 2% in 2008 and yet some of the largest players are instilling their own underwriting discipline and cutting capacity further. From the article:
Even before the Lloyd's announcement, many Lloyd's underwriters in the fourth
quarter last year were announcing 2008 capacity cuts well above 2%. Liberty
Syndicates cut its capacity by 9.5%, R J Kiln cut 2008 capacity 14%, and Hiscox
reduced capacity for its Syndicate 33 by 20%.

Quotes in the article from the head of Catlin and the head of Hiscox expressed disappointment in the move by Lloyd's. What struck me is that Lloyd's doesn't mandate a minimum that Hiscox nor Catlin nor any syndicate must write, so why the complaint?

How it works: Lloyd's sets a maximum capacity that any syndicate may write - the aggregate was that which was lowered by 2%. How it's changing: Rolf Tolle pointed out that Lloyd's will no longer announce this number in advance and will instead report previous year's performance only - in keeping with competitors' practices.

What is really behind these complaints, then, is that these managing agents are not happy that there are new entrants at Lloyd's. Syndicates have increased from 66 to 75 in 2008 (including 5 Special Purpose Syndicates (SPS's) and Managing agents have increased to 46 in 2008 (see here).

With new money in from other underwriters, and from the capital markets (Goldman Sachs, Bank of America), current Managing Agents don't like the increased competition.

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