Tough but innovative
Is London an attractive place to be for brokers?
Price: “I see it as being quite a competitive market. We’ve had it tough since March or April from a reinsurance treaty ratings point of view. London offers as much capacity as it possibly can do on US treaty business and other cat business but, yes, it’s competitive and a good place to do business. As a reinsurance broker we may sit in London but like everybody else we operate globally so the markets are in Germany, Switzerland, New York, wherever it happens to be but having a base in London is good news.”
Esser: “It is a difficult market for brokers and it’s tough right now for London. I think it’s tough for Lloyd’s and it’s tough for the London brokers. From a profitability point of view you just have to look at most London brokers’ results and actually they’re not tremendously profitable because it’s a very expensive place to do business.
“Technology has not moved on despite all the great efforts to do it but within the Lloyd’s community there’s still too much paperwork. It’s the most regulated market in the entire world bar none and that makes it expensive as well. There is less reinsurance being bought right now and there’s more of a squeeze from big retailers on that reinsurance so I think specific reinsurance is quite difficult as well.”
Flandro: “My view of the London market is perhaps more favourable. I see it really as one of the world’s most innovative markets, which could be the world’s most innovative market, but there are certainly competitive pressures that are entering into the market right now on the ratings side. Some of that’s being driven in areas outside of London – third party capital coming into Bermuda, and even if it’s not directly affecting individual lines of business in the London market there’s a spill over effect which is causing attritional pressure on rates.
“That being said I’m quite optimistic because I’ve seen the London market come through some big challenges and really prosper – first after the liability crisis in the early part of the last decade then during and after the financial crisis. Six years or so ago we held a panel where we had somebody from London, somebody from Bermuda and somebody from Switzerland come and talk about the relative of each market. Bermuda probably won the day at that time. I think up until a couple of years ago London would have been winning the day unquestionably and now I think it’s a bit of a tie. But it’s a great market and I think it will continue to innovate and to be a place where a lot of great business gets done.”
Esser: “I don’t think you can compare London to anywhere. I don’t think you could before and I don’t think you can now. For those of us who have operated in the London market over years it’s the most innovative and employs high quality people but that doesn’t mean it doesn’t have its challenges – I think it has very significant challenges now and I think particularly that applies to the independent Lloyd’s broker and to the smaller Lloyds syndicates – I think everyone’s looking at what will be their future.”
Are we likely to see new entrants?
Price: “There haven’t been many new brokers setting up lately – when we started 40 years ago as a breakaway it was relatively easy to do. I don’t think any new broking companies have stared in the last few years in our field. Provincially, probably, but on the underwriting side a lot of new entities want to come into the Lloyd’s market but the Franchise Board is keeping them at bay because there’s not enough business to feed them all.”
Esser: “There are not a lot of new brokers. There are new syndicates because Lloyd's is a great platform. If you can get to Lloyd’s you automatically have a reputation, you automatically have a license, you automatically have a rating at a price way less than if you start up your own insurer so I think it’s still very attractive from that perspective.
“The cost of entry for a broker is very high today. There used to be a lot of breakaways. Nobody really sees breakaways anymore because the cost is very high but also people want bigger brokers, they want to deal with the bigger balance sheet rather than dealing with relatively small – and everybody who’s started a business was small to start with. You don’t suddenly go and put £100 million in the bank as a broker, you just have an office and two people.”