Lloyd’s casualty reinsurance market could repeat past mistakes: LMA

The majority of Lloyd’s international casualty reinsurance underwriters believe that by offering more relaxed terms and conditions, the market could be repeating historical mistakes.

This is according to a straw poll by the Lloyd’s Market Association (LMA), which found that 68 percent of casualty treaty underwriters believe that this softening of terms and conditions could cause the same mistakes in the industry that have previously occurred.

Around 95 percent said that they had seen softening of terms and conditions in the international casualty market and 39 per cent believed that more than half of those changes were having a material impact on underwriters’ exposures.

A majority (71 percent) of respondents thought that differential terms across a placement were becoming more common at Lloyd’s.

“When it comes to market conditions, underwriters feel rates are at the bottom of the cycle, or are approaching bottom and the majority felt current prices were unsustainable. Considering these conditions, underwriters were surprised that clients were not buying more international casualty reinsurance protection,” said the LMA.

Two thirds of underwriters also said they had declined more renewal business in 2015 than the previous year, due to broadening terms and conditions, pricing considerations and poor loss experience.

Respondents represented three quarters (by gross written premiums) of the international casualty treaty market in Lloyd’s.

Patrick Davison, senior executive, underwriting, LMA said: “This is a fairly informal survey but its results point strongly towards a buyer’s market in which traditional underwriter discipline is under considerable pressure.

“The growth in the prevalence of differential terms is particularly disturbing. These create headaches for the market’s back office and the efficiency with which claims in a subscription market can be managed. Differential terms might be one indicator that some reinsurers have concluded further amendments to coverage or retentions are unsustainable.

This view is supported by the clear perception in the market that the bottom of the cycle is approaching, as highlighted by the increasing number of underwriters declining business.”