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GOOD AFTERNOON LADIES AND GENTLEMEN

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GOOD AFTERNOON LADIES AND GENTLEMEN Powered By Docstoc
					           THE INSURANCE INSTITUTE OF LONDON




 “WHAT THE US MARKET WANTS
  TO KNOW AND EXPECTS FROM
     THE LONDON MARKET”
                                         BY




                        MS L HOWARD
                  (London Editor, The National Underwriter)


          BEING AN ADDRESS DELIVERED TO THE INSTITUTE ON


                       THURSDAY 28 FEBRUARY 2002


NOTE TO READERS: PUBLICATION OF A PAPER BY THE INSTITUTE DOES NOT NECESSARILY IMPLY
 AGREEMENT WITH THE STATEMENTS MADE OR OPINIONS EXPRESSED FOR WHICH THE WRITER
                              ALONE IS RESPONSIBLE
GOOD AFTERNOON LADIES AND GENTLEMEN. WHEN I WAS ASKED TO

GIVE A SPEECH ON WHAT THE U.S. MARKET EXPECTS FROM THE LONDON

MARKET, I RECALLED THE OLD STORIES OF RISK MANAGERS WHO USED

TO COME TO LONDON BECAUSE THEIR BROKERS WERE ESPECIALLY

GENEROUS WITH THE GIFTS. THERE WAS ONE IN PARTICULAR WHO USED

TO RECEIVE NICE COATS FOR HIS WIFE. BUT I GUESS WITH THE CURRENT

VIEW TO CUTTING EXPENSES, BROKERS ARE SLIGHTLY LESS GENEROUS

THAN THEY USED TO BE. THERE ARE FEW MINK COATS LISTED ON

EXPENSES. SO SURELY THERE MUST BE ANOTHER REASON THAT PEOPLE

COME TO LONDON. THEN I REMEMBERED A LLOYD’S NAME, WHO ONCE

TOLD ME THAT THE UNITED STATES DUMPS ALL ITS GARBAGE RISKS IN

LONDON AND PARTICULARLY AT LLOYD’S. THERE’S NO SURPRISE THAT A

LLOYD’S NAME WOULD SAY THAT, BUT SUBSEQUENTLY I HAVE OFTEN

HEARD THAT LONDON IS THE MARKET OF LAST RESORT FOR THE U.S.

MARKET.



SLIDE ONE.



THE LAST CHANCE FOR GAS WITH A LONG ARIZONA DESERT AHEAD.



CERTAINLY LONDON IS EXTREMELY IMPORTANT TO U.S. INSURANCE AND

REINSURANCE BUYERS. JUST LOOK AT THE NUMBERS. IN 2001, LLOYD’S

GROSS PREMIUM INCOME IS CURRENTLY STANDING AT £10.75 BILLION, OR

$15.5 BILLION. THE UNITED STATES PROVIDED $7.1 BILLION OF THAT

TOTAL. AND BREAKING THAT DOWN FURTHER, REINSURANCE PREMIUMS

TOTALED $2.7 BILLION, WHILE U.S. SURPLUS LINES PROVIDED $3.4 BILLION

IN PREMIUMS.
IN THE YEAR 2000, THE LATEST FIGURES AVAILABLE FOR THE

INTERNATIONAL UNDERWRITING ASSOCIATION, ITS MEMBERS WROTE AN

ESTIMATED £12 BILLION IN PREMIUMS FROM THE LONDON MARKET, WITH

20 PERCENT OF THAT TOTAL COMING FROM THE U.S. MARKET.



I HAVEN’T BEEN ABLE TO BREAK THAT DOWN INTO REINSURANCE AND

SURPLUS LINES.



THESE ARE SIGNIFICANT NUMBERS FOR A MARKET OF LAST RESORT.



I DECIDED TO HANDLE THE WRITING OF THIS SPEECH JUST AS I WOULD A

STORY, SO I’VE INTERVIEWED RETAIL, WHOLESALE AND REINSURANCE

BROKERS AS WELL AS INSURANCE AND REINSURANCE BUYERS. THEIR

ANSWERS ABOUT THE LONDON MARKET WERE SOMEWHAT SURPRISING—

POSITIVE IN MANY AREAS AND OF COURSE THERE WERE SOME

COMPLAINTS.



ONE OF THE FIRST QUESTIONS I ASKED WAS WHETHER THE LONDON

MARKET IS THE MARKET OF LAST RESORT.



NEXT SLIDE (Is the London market the market of last resort and getting the worst of

American risks?)



OF COURSE OPINIONS VARY. A U.S. REINSURANCE BUYER SAID HE HAD

NEVER THOUGHT OF LONDON AS A MARKET OF LAST RESORT BUT

INSTEAD AS INTEGRAL TO ANY PROPERTY TREATY, ANY PROGRAM HE

WAS LOOKING TO PLACE. ANOTHER REINSURANCE BUYER SAID THE
    LONDON MARKET HAS PAID THE PRICE FOR BEING A MARKET OF LAST

    RESORT. HE SAID FOR WORKING LEVEL U.S. CASUALTY BUSINESS,

    LONDON IS THE PLACE WHERE BROKERS END UP GOING AFTER THEY’VE

    EXHAUSTED KNOWLEDGABLE HIGH-QUALITY U.S. CAPACITY FOR

    CASUALTY RISKS SUCH AS MEDICAL MALPRACTICE, TRUCKING,

    ARCHITECTS AND ENGINEERS AND SOME CLASSES OF E&O AND D&O.




`   A NEW YORK RETAIL BROKER SAYS THAT LONDON IS THE MARKET OF

    LAST RESORT FOR U.S. BUYERS BUT THAT’S NOT A BAD THING, HE SAYS,

    AS LONG AS RISKS ARE PROPERLY UNDERWRITTEN. AMERICA WILL DUMP

    GARBAGE RISKS ON LONDON, ONLY IF LONDON LETS IT, HE SAYS.

    “WHEN LLOYD’S WRITES WINDSTORM IN FLORIDA AND UNDERWRITERS

    HAVE DONE THE PROPER STUDIES AND MODELING, THEN THAT’S AN

    IMPORTANT NEED LLOYD’S IS FILLING,” HE SAID, AND THE RISK IS NOT

    GARBAGE.

    WHILE HE IS COMFORTABLE WITH LLOYD’S PAPER, HE SAID IF HE HAS A

    CHOICE BETWEEN A DOMESTIC CARRIER AND A LLOYD’S CARRIER, WITH

    EVERYTHING ELSE BEING EQUAL, HE WILL GO WITH THE DOMESTIC

    CARRIER. THE REASONS FOR CHOOSING DOMESTIC COMPANIES FIRST IS

    THAT THEY ARE REINSURED LOCALLY AND INSURED BY THE STATE

    GUARANTEE FUNDS, HE SAID. “IF I HAVE A CHOICE BETWEEN CHUBB, AIG,

    HARTFORD AND LLOYD’S, THE THREE DOMESTIC CARRIERS WILL WIN

    EVERY TIME,” HE SAID.



    THIS RETAIL BROKER SAID THE U.S. PROFESSIONAL LIABILITY MARKET

    WOULD BE EXTREMELY STRAINED IF IT WEREN’T FOR LLOYD’S. HE SAYS

    THAT LONDON IS A VERY IMPORTANT MARKET FOR LARGE LAW FIRMS
WHO BUY THEIR INSURANCE FROM LLOYD’S WHERE SOPHISTICATED

UNDERWRITERS UNDERSTAND THE PROFESSIONAL LIABILITY MARKET.



SEVERAL BROKERS AND BUYERS INTERVIEWED AGREED THAT THEY

DON’T PLACE LONG-TAIL RISKS AT LLOYD’S BECAUSE OF CONCERNS

ABOUT ITS LONG-TERM VIABILITY. THEY WILL, HOWEVER, HAPPILY

PLACE PROPERTY CAT RISKS IN LONDON AND AT LLOYD’S BECAUSE THEY

NEED THE CAPACITY AND THEY WANT TO SPREAD RISKS THROUGH THE

VARIOUS MARKETS.



SEVERAL MGAS SAID THAT LONDON IS ABSOLUTELY THEIR MARKET OF

FIRST CHOICE. TAP JOHNSON, PRESIDENT OF TAPCO UNDERWRITING, A

U.S. MGA, SAYS THAT HE HAS ALWAYS COME TO LONDON AS A FIRST

CHOICE BECAUSE UNDERWRITERS HISTORICALLY HAVE BEEN MORE

WILLING TO DEVELOP CUSTOM-MADE PROGRAMS FOR HIS SPECIALTY

PROPERTY NICHE.



REFERRING SPECIFICALLY TO LLOYD’S A TEXAS-BASED MGA SAID THAT

THE LLOYD’S MARKET EXCELLS IN A NUMBER OF LINES, WHICH MAKES IT

A MARKET OF FIRST CHOICE.



“AS ONE MARKET TO GO TO FOR AN AMAZING AMOUNT OF CAPACITY,

LLOYD’S STILL SURPASSES ANYWHERE ELSE,” HE SAYS. “AND WITH ITS

WILLINGNESS TO WRITE THE DIFFICULT RISK, LLOYD’S SURPASSES ANY

OTHER MARKET I’M AWARE OF,” HE ADDED. HE ALSO SAID THAT

LLOYD’S IS STILL RECOGNIZED AS THE CENTER OF EXPERTISE AND

KNOWLEDGE ABOUT INTERNATIONAL RISK.
THE ONE LEG UP THAT LLOYD’S AND THE LONDON MARKET HAS OVER

MOST OTHER MARKETS IS THAT THEY SEE AN INCREDIBLE FLOW OF

BUSINESS FROM ALL OVER THE WORLD, HE CONTINUED.



A U.S. REINSURANCE BROKER SAID THAT PRUDENT PEOPLE REALIZE THAT

YOU NEED TO SPREAD YOUR CAPACITY AROUND THE GLOBE SO YOU’RE

NOT SUBJECT TO INDIVIDUAL MARKET FLUCTUATIONS. “THAT’S THE

REAL POINT FOR DEALING WITH LONDON AND KEEPING LONDON

HEAVILY INVOLVED WITH PROGRAMS,” HE SAID. THE REINSURANCE

BROKER SAID THE LONDON MARKET IS BEST AT PROVIDING LONG-TERM

RELATIONSHIPS AND CAPACITY AS WELL AS HAVING THE CREATIVITY TO

RESPOND TO MARKET CRISES.




NEXT SLIDE (Are there areas that the London market should avoid?)



MOVING ON, THERE WERE SOME VERY STRONG VIEWS EXPRESSED ABOUT

THE CLASSES OF BUSINESS THAT LONDON SHOULD AVOID. SEVERAL

REINSURANCE BUYERS BELIEVE THAT LONDON SHOULD STAY AWAY

FROM U.S. WORKING LAYER CASUALTY RISKS, WHICH ARE FRAUGHT

WITH LOSSES EVEN FOR THE U.S. DOMESTIC MARKET.



ONE REINSURANCE BUYER CAUTIONED THAT THE LONDON MARKET WILL

ALWAYS BE AN IMPORTANT MARKET BUT IT COULD BE A SHADOW OF ITS

FORMER SELF IF IT DOESN’T TAKE CARE ABOUT THE LINES IT’S WRITING.

HE SAID THAT THE PROBLEMS EXPERIENCED IN THE LONDON MARKET

OCCURRED WHEN BUSINESS SOURCED FROM ANOTHER COUNTRY

SHOULD HAVE BEEN WRITTEN IN THAT COUNTRY. HE POINTED TO U.S.
CASUALTY RISKS AS THE MAIN CULPRIT. “IN MY OPINION,” HE SAID, “I

DON’T THINK YOU CAN UNDERWRITE COMPLICATED WORKING LAYER

CASUALTY FOR RISKS LOCATED 3000 MILES AWAY,” HE SAID. HE SAID

WHEN HE FIRST VISITED LLOYD’S AS A BUYER OF CASUALTY

REINSURANCE IN THE MID-1980S, HE FOUND THAT LLOYD’S APPEARED TO

BE DOING A LOT OF SEAT OF THE PANTS UNDERWRITING, OR SEAT OF THE

TROUSERS UNDERWRITING, IN THE CASUALTY AREA, WHILE HIS

COMPANY HAD A LOT OF ACTUARIES AND A THOUSAND MOVING PARTS

TO TRY TO ANALYZE CASUALTY RISKS.



SPEAKING FROM MY OWN POINT OF VIEW, I AM ASSUMING THAT THAT

HAS CHANGED OVER THE LAST 15 YEARS.



ANOTHER REINSURANCE BUYER SAID HE DOESN’T KNOW WHY THE

LONDON MARKET GETS INVOLVED WITH U.S. CASUALTY WORKING

LAYERS, GIVEN THE RESULTS OVER THE PAST SEVERAL DECADES.

BOTH THESE REINSURANCE BUYERS THOUGHT THAT LONDON WOULD BE

BETTER SUITED TO HIGH-LIMIT CAPACITY, CATASTROPHE KINDS OF

EXPOSURES, BOTH FOR PROPERTY AND CASUALTY. THEY ALSO SAID

THAT LLOYD’S EXCELS IN MARINE AND AVAITION AND SHOULD STICK TO

THOSE LINES AS WELL. BOTH UNDERWRITERS MENTIONED THE

DISTANCE BETWEEN THE LONDON MARKET AND THE U.S. MARKET AS

BEING THE PRINCIPAL REASON THAT LONDON SHOULD STAY AWAY FROM

WORKING LAYER CASUALTY BUSINESS. HOWEVER, THE

AFOREMENTIONED U.S. RETAIL BROKER, WHO DEALS A LOT IN CASUALTY

WORKING LAYERS, SAID THAT EVEN LOCAL KNOWLEDGE DOESN’T

ALWAYS HELP INSURERS MAKE MONEY IN THIS DIFFICULT CLASS OF

BUSINESS. “BEING 3000 MILES AWAY IS NOT THE ISSUE,” HE SAID. THE
RETAIL BROKER SAID HE KNOWS INSURERS LOCALLY IN THE U.S. WHO

ARE GETTING KILLED ON CASUALTY AS WELL. “THE ALTANTIC OCEAN

DOESN’T CHANGE COMMON SENSE.” HE SAYS AN UNDERWITER WITH

EXPERTISE CAN MAKE MONEY ON BOTH SIDES OF THE ATLANTIC AND AN

UNDERWRITER WITH NO SENSE WILL LOSE MONEY ON BOTH SIDES OF THE

POND.



“WHERE LONDON GOT INTO TROUBLE IS THAT UNDERWRITERS BEGAN TO

GET INTO TRANSACTIONAL INSURANCE,” HE SAID. “THEY BEGAN TO DO

PRIMARY GL AND THEY BEGAN TO COMPETE STRICTLY ON PRICE. THEY

GOT AWAY FROM THEIR FOUNDATION—AS DID THE REST OF THE

INSURANCE INDUSTRY.



THE TEXAS MGA AGREED THAT LLOYD’S AND THE LONDON COMPANY

MARKETS HAVE NO REASON TO WRITE PRIMARY LIABILITY BECAUSE

THEY DON’T HAVE THE INFRASTRUCTURE TO HANDLE THE CLAIMS.

“LLOYD’S HAS TO HIRE SOMEONE AND PAY SOMEONE TO HANDLE THE

CLAIMS, WHEREAS A U.S. DOMESTIC INSURER WILL HAVE A COMPLETE

STAFF SITUATED ACROSS THE U.S. TO HANDLE THE CLAIMS.”



INDEED, CLAIMS HANDLING WAS MENTIONED BY SEVERAL PEOPLE AS A

PROBLEM FACING THE LONDON MARKET. NOT ONLY ARE PAYMENTS

GENERALLY SLOW, AS YOU ALL KNOW, BUT SEVERAL PEOPLE

COMPLAINED THAT LONDON USES LAWYERS TO HANDLE CLAIMS, WHICH

ACTS TO INCREASE COSTS AND DISTANCES THE MARKET FROM WHAT’S

HAPPENING IN THE U.S.
A REINSURER SAID HE HAS BEEN ASKING FOR 10 YEARS WHY LONDON

USES LAWYERS FOR CLAIMS SETTLEMENT. IF YOU’RE INVOLVED IN

LITIGATION OBVIOUSLY YOU NEED SOMEONE TO PROTECT YOUR

INTERESTS BUT CLAIMS SHOULD NOT BE HANDLED THROUGH LEGAL

INTERMEDIARIES, HE SAID.   WITH NO LOCAL KNOWLEDGE, WITHOUT AN

UNDERSTANDING OF THE REGULATORY SYSTEM OR THE JUDICIAL

SYSTEM OR FIRST HAND KNOWLEDGE OF WHAT’S HAPPENING IN THE U.S.

MARKET, HE SAID IT TAKES MUCH LONGER FOR THE RESULTS OF

CHANGES IN THE U.S. CASUALTY BUSINESS TO BE REFLECTED IN LONDON.



DAVID MAIR, THE CURRENT PRESIDENT OF RIMS AND THE RISK MANAGER

FOR THE U.S. OLYMPIC COMMITTEE, STRONGLY DISAGREED WITH THE

IDEA THAT LLOYD’S AND THE LONDON MARKET SHOULD STAY AWAY

FROM U.S. WORKING LAYER CASUALTY BUSINESS. “TO LIMIT LLOYD’S TO

BEING SIMPLY A WRITER OF REINSURANCE OR OF HIGH-LEVEL EXCESS, I

THINK FRANKLY LIMITS THE CREATIVITY THAT THAT MARKET HAS

ALWAYS DISPLAYED,” HE SAID. “YOU ALWAYS HAVE TO MANAGE THE

OPPORTUNITY RISK AGAINST THE DOWNSIDE.”



ANOTHER AREA THAT SOME BELIEVE LONDON SHOULD KEEP CLEAR OF IS

MGA BINDING AUTHORITIES. THE REINSURANCE BUYERS INTERVIEWED

BELIEVE THAT MONEY CAN BE MADE, BUT NOT MANY KNOW HOW TO DO

IT WELL. MANY MGAS DON’T HAVE, ENOUGH SKIN IN THE GAME, THE

UNDERWRITERS STRESS.

“AS A LONG-STANDING FUNDAMENTAL PART OF THE LLOYD’S MARKET,

THE MGA AND BINDING AUTHORITY BUSINESS IS PROBLEMATICAL,” ONE

OF THE REINSURANCES BUYERS SAID. “THE REAL QUESTION IS WHAT
BUSINESS DOES LLOYD’S HAVE A DISTINCTION IN? AND HOW SHOULD IT

BASE ITS FUTURE GOING FORWARD?” HE QUESTIONED.



THIS COMMENT BRINGS ME TO MY NEXT POINT ABOUT CAPACITY

ALLOCATIONS.



NEXT SLIDE. Is the London market short-sighted in its recent capacity allocations?



I DECIDED TO INCLUDE THIS POINT BECAUSE I’VE DONE SEVERAL

ARTICLES RECENTLY ON FRUSTRATED U.S. MGAS WHO BELIEVE THAT THE

LONDON MARKET IS CONCENTRATING ALL ITS CAPACITY ON THE HIGH-

EARNING PROPERTY CAT BUSINESS, FORSAKING LONG-STANDING,

PROFITABLE MGA RELATIONSHIPS.

IN NEXT WEEK’S NATIONAL UNDERWRITER I QUOTE JOE TIMMONS FROM

MIDWESTERN GENERAL AGENCY WHO HAS LOST TWO OF HIS THREE

BINDING AUTHORITIES, FORMERLY BACKED BY THE LONDON MARKET.

HE SAID THOSE BINDERS WERE PROFITABLE FOR YEARS, ALTHOUGH THEY

MADE SOME LOSSES OVER THE LAST TWO YEARS, IN PART, AS A RESULT

OF MIDWESTERN HAILSTORMS AND SOFT MARKET CONDITIONS. THE

LONDON MARKET SEVERAL YEARS AGO WAS CLAMORING FOR U.S.

BINDERS AND THEY PROBABLY WILL AGAIN WHEN THE NEXT SOFT

MARKET REARS ITS HEAD, HE SUGGESTED. WHEN THAT HAPPENS HE SAID

MGAS WILL MORE THAN LIKELY STICK TO THE MARKETS THAT HAVE

SUPPORTED THEM DURING THIS CAPACITY CRUNCH.



HE AND OTHER MGAS BELIEVE THAT LONDON IS BEING VERY SHORT-

SIGHTED BY PAINTING ALL MGAS WITH THE SAME BRUSH. TAP JOHNSON

OF TAPCO UNDERWRITERS SAID THAT PRIOR TO ABOUT 18 MONTHS AGO,
HE COULD HAVE A FACE-TO-FACE DIALOGUE WITH A LEAD

UNDERWRITER OF A LLOYD’S SYNDICATE AND CUSTOM ENGINEER A

PROGRAM. HOWEVER, IN THE LAST 18 MONTHS, THERE HAS BEEN A BIG

TURNOVER IN THE LONDON MARKET. SO NOW HE MAY HAVE TO DEAL

WITH SOMEONE WHO IS NOT FAMILIAR WITH THE BINDING AUTHORITY

CONCEPT AND THEY DON’T WANT TO TAKE THE TIME TO LEARN.




THIS BRINGS ME TO MY NEXT POINT.



NEXT SLIDE. (Is the recent “churning” of underwriters hurting the London market?)



MOST OF THOSE INTERVIEWED BELIEVED THAT LONDON HAS BEEN

INJURED BY THE DISRUPTION TO CONTINUITY OF THE RECENT CHURNING

OF UNDERWRITERS. THEY BELIEVE THAT COMPANY MANAGEMENT HAS

BLAMED UNDERWRITERS FOR GENERAL SOFT MARKET CONDITIONS AND

AS A RESULT, PEOPLE WITH LONG-STANDING RELATIONSHIPS AND A

WEALTH OF EXPERIENCE, HAVE BEEN FIRED.



RELATIONSHIPS ARE ESPECIALLY IMPORTANT FOR CASUALTY BUSINESS,

THEY STRESS. ONE OF THE REINSURANCE BUYERS DOESN’T PLACE HIS

CASUALTY BUSINESS IN LONDON IN PART BECAUSE HE SAID “YOUR

CLAIMS ARE IN THE HANDS OF THOSE YOU PICK FOR LEADS AND THE

LEADS HAVE CHANGED SO MUCH IN THE LAST THREE YEARS. THERE IS

NO STABILITY AND GONE ARE THE LONG-TERM RELATIONSHIPS, WHICH IS

PARTICULARLY IMPORTANT FOR CASUALTY BUSINESS.” HE NOTED THAT

PROPERTY BUSINESS IS MORE OF A CAPACITY DRIVEN, MARKET PRICED

COMMODITY, SO RELATIONSHIPS AREN’T AS IMPORTANT.
THIS VIEW WAS REFLECTED BY NEARLY ALL THOSE I INTERVIEWED.



NEXT SLIDE. What do the buyers of insurance think about the London market?



 MOVING ON TO GENERAL THOUGHTS ABOUT THE LONDON MARKET. I

TALKED TO SOME INSURANCE BUYERS WHO COUNT ON LONDON AS

ANOTHER SOURCE OF CAPACITY. THEY WANT A HEALTHY U.S. DOMESTIC

MARKET, A HEALTHY BERMUDA, AND A HEALTHY LONDON MARKET.

ONE RISK MANAGER SAYS SHE PLACES SOME OF HER PROPERTY

CATASTROPHE RISKS AT LLOYD’S, DESPITE SOME BAD CLAIMS

EXPERIENCE ON THE CASUALTY SIDE IN THE EARLY 1990s. SHE SAYS IT’S

IMPORTANT TO KEEP HER TOE IN THE WATER HERE JUST TO SPREAD HER

RISKS THROUGHOUT THE GLOBAL MARKETS. SHE ALSO SAYS SHE MAKES

HER DECISIONS ABOUT LLOYD’S BY LOOKING AT INDIVIDUAL

SYNDICATES AND THE STRENGTH OF THEIR PARENTS, RATHER THAN THE

OVERALL MARKET RATING.



DAVID MAIR, THE CURRENT PRESENT OF RIMS, SAID LLOYD’S AND THE

LONDON COMPANY MARKET HAVE LONG BEEN ONE OF THE MORE

CREATIVE MARKETS IN TERMS OF BEING WILLING TO TAKE RISKS THAT

DON’T NECESSARILY FIT INTO SOMEONE ELSE’S BOX. MR. MAIR SAID THE

MARKET CAN FIND A WAY TO ASSEMBLE A PROGRAM THAT HELPS A

COMPANY MEET A PARTICULAR RISK AND THEREBY DIFFERENTIATE IN

THE GLOBAL INSURANCE MARKET.



HOWEVER, WHEN I ATTENDED LAST WEEK’S WORLD INSURANCE FORUM

THERE WAS A LOT OF GRUMBLING ON THE PART OF RISK MANAGERS WHO
BELIEVE THE INDUSTRY IN GENERAL—NOT JUST LLOYD’S—IS

INTERNALLY FOCUSED, RATHER THAN EXTERNALLY FOCUSED AND AS A

RESULT FAILS TO TAKE INTO ACCOUNT CUSTOMER SERVICE AND FINDING

SOLUTIONS FOR THE CURRENT COVERAGE GAPS, SUCH AS TERRORISM,

SURETY AND EXCESS WORKERS COMP.



ANOTHER RISK MANAGER SAYS THE PROBLEMS LONDON FACES ARE

SIMILAR TO THE PROBLEMS OF OTHER MARKETS. SHE BELIEVES THAT

ALL INSURANCE MARKETS NEED TO BE MORE RESPONSIVE TO THE NEEDS

OF THE BUYERS AND STOP NAVAL GAZING. SHE SAYS THE MARKET HAS

OVER-REACTED WITH THE TERRORISM EXCLUSIONS AND THAT’S A

PROBLEM FOR THE GLOBAL INSURANCE INDUSTRY. SHE SAYS AS SOON

AS THE INDUSTRY PERCEIVES A RISK, IT SLAPS ON AN EXCLUSION,

RATHER THAN FINDING A SOLUTION.



NEXT SLIDE. What do the buyers of reinsurance think about the London market?



AND FINALLY, IN THE COURSE OF MY DISCUSSIONS WITH REINSURANCE

BUYERS, I HEARD ONE NOTABLE COMPLAINT, OTHER THAN THE ONES

YOU ALREADY KNOW ABOUT, I.E., SLOW CLAIMS PAYMENTS AND SLOW

ISSUANCE OF DOCUMENTS.



ONE REINSURANCE BUYER ECHOED A COMMENT BY THE RISK MANAGER.

HE SAID THAT LLOYD’S WISHES TO BE A MARKET BUT ACTS

INDIVIDUALLY. AS A RESULT, HE SAID HE LOOKS AT EACH LLOYD’S

SYNDICATE IN TERMS OF ITS SIZE, CLAIMS-PAYING ABILITY AND BELL

RANKINGS, RATHER THAN LOOKING AT LLOYD’S AS A MARKET.
THE REASON, HE SAID, IS THAT LLOYD’S DOES NOT ACT LIKE A MARKET

WHEN TIMES GET TOUGH AND SYNDICATES BEGIN SUING EACH OTHER.



HE SAID WHEN HE INFREQUENTLY HAS A PROBLEM WITH GENERAL RE HE

CALLS JOE BRANDON AND THE PROBLEM IS SORTED, BUT AT LLOYD’S HE

HAS NO ONE TO TALK TO. “I’VE GOT TO GO THROUGH A BROKER OR TWO

BROKERS AND EACH LEAD UNDERWRITER HAS THEIR OWN VIEW.”



“SO UNLESS YOU CAN SOLVE THAT PROBLEM, SOME BUYERS WILL

CONTINUE TO TREAT LLOYD’S AS A SHOPPING MALL FULL OF BOUTIQUE

STORES RATHER THAN AS A DEPARTMENT STORE,” HE SAID.



ANOTHER REINSURANCE BUYER COMPLAINED THAT LONDON AND OTHER

MARKETS ASKED A LOT OF QUESTIONS ABOUT HIS COMPANY’S RISKS

DURING THE RECENT RENEWALS BUT TOOK FOREVER TO GET BACK TO

HIM WITH A YEA OR A NAY.



“WE DID THE FIRST ROUND OF QUESTIONS AND THEN THE NEXT AND THE

NEXT,” HE SAID. “I THINK THE DIFFICULT PART IS THAT AT SOME POINT

YOU HAVE TO END THE QUESTIONS AND YOU’VE GOT TO FIND OUT

WHETHER THIS REINSURER REALLY INTENDS TO PLACE A LINE OR NOT. I

CAN ONLY SPIN SO MANY PIE PLATES AT ONCE,” HE SAID. AFTER THE

LONG SERIES OF QUESTIONS, HE SAID A PERCENTAGE OF THE MARKET

DID NOT COME THROUGH IN THE END. HE SAID THERE WERE INSURERS

THAT HAD SUPPORTED HIS COMPANY IN THE PAST AND BECAUSE THEY

HAD TO MAKE SOME TOUGH DECISIONS, THEY FOUND IT HARD TO TELL

HIM THEY WOULDN’T BE WRITING THE BUSINESS.
HE SAID MOST BUYERS WOULD RATHER HAVE A QUICK REFUSAL AND

DON’T WANT TO BE KEPT HANGING. HE SAID HE FOUND THIS LACK OF

DIRECTNESS IN LONDON AND ON THE CONTINENT AS WELL.              “WE HAVE

CUSTOMERS; WE HAVE OTHER PEOPLE WHO ARE DEPENDING ON HOW

DEFINITIVE WE CAN BE ABOUT WHAT WE CAN DO,” SO HE ADDED, QUICK

ANSWERS ARE APPRECIATED.



IN CONCLUSION, EVERY MARKET HAS ITS CHALLENGES. FOR EXAMPLE,

RUMOR HAS IT THAT THE NEW BERMUDIANS ARE STILL WORKING ON

THEIR JANUARY RENEWALS. THE QUESTION FOR LONDON IS HOW WILL IT

DIFFERENTIATE ITSELF IN THE FUTURE? LONDON NOW HAS A CHANCE TO

PROVE ITSELF TO INSURANCE AND REINSURANCE BUYERS BY FINDING

SOLUTIONS TO GAPS IN COVERAGE THAT OTHER MARKETS ARE REFUSING

TO TOUCH.



NEXT SLIDE. The London market—An oasis for the U.S. market?   IT CAN

BECOME AN OASIS IN A HARD MARKET. OR IT COULD BECOME RISK

ADVERSE, WHICH WILL MAKE LONDON A CAPACITY MARKET RATHER

THAN A SOLUTIONS MARKET.

				
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