Lloyd’s international casualty reinsurance underwriters are running the risk of repeating the same mistakes that have placed the market in difficulty in the past, a new straw poll of Lloyd’s reinsurance specialists suggests.
According to the survey conducted by the Lloyd’s Market Association (LMA) in August, 68 percent of casualty treaty underwriters believe that by offering more relaxed terms and conditions, the market could be repeating historical mistakes.
Of those who responded, 95 percent said that they had seen softening of terms and conditions in the international casualty market and 39 percent believed that more than half of those changes were having an impact on underwriters’ exposures.
A concern for the market is that 71 percent of respondents thought that differential terms across a placement were becoming more prevalent at Lloyd’s.
In terms of market conditions, underwriters felt that rates are bottom of the cycle or are approaching bottom. The vast majority felt that current prices are unsustainable.
Considering these conditions, underwriters were surprised that clients are not buying more international casualty reinsurance protection.
Two thirds of underwriters said that they have declined more renewal business in 2015 than the previous year. Broadening terms and conditions was the reason most commonly citied, followed by pricing considerations and poor loss experience.
Patrick Davison, the LMA’s senior executive of underwriting, commented: “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.”
