Aspen Insurance Holdings is to stop underwriting international professional indemnity (PI), marine hull, and aviation insurance at Lloyd’s of London, with the cost of doing business at the specialist insurance and reinsurance marketplace being a factor.
Speaking during the insurer and reinsurer’s second-quarter 2018 earnings call, Chief Executive Officer (CEO), Chris O’Kane, said that an important part of the company’s continued efforts to improve its operations includes the business it underwrites on its Lloyd’s platform.
He explained that approximately $480 million, or one-quarter of Aspen’s insurance premiums is written at Lloyd’s, with the platform recording a five-year average loss ratio of 62%.
“This is good, but we need it to be better,” said O’Kane.
The majority of the business Aspen underwrites at Lloyd’s performs very well, and O’Kane said the firm will continue to focus on growing these lines. However, some areas have been disappointing, specifically international professional indemnity and marine hull, said O’Kane.
“Therefore, we will no longer underwrite these books on the Lloyd’s platform,” said O’Kane. Adding later, that, “we will discontinue writing aviation insurance at Lloyd’s.”
The reasons for ceasing to underwrite these businesses on its Lloyd’s platform varies by line, and with marine hull, this includes the high costs of doing business at Lloyd’s.
O’Kane explained that with marine hull, there are a couple of things going against the business at Lloyd’s, which includes the segment being highly commoditised.
“We happen to have a very good team there on the Lloyd’s platform, and that is the most expensive platform we have, and that cost is not within our control. And the way the brokers behave, they’re very commoditised.
“I think it’s just very, very tough, even though our loss ratios aren’t great, they’re not lacking in respectability. But, combine that with a kind of strategic downwind and a high expense base, it didn’t make sense to us,” said O’Kane.
Doing business in the Lloyd’s of London market is not cheap, and, combined with other headwinds, has led Aspen to cease underwriting marine hull on its Lloyd’s platform.
Concerning aviation insurance, the story is somewhat different, and O’Kane explained that the firm’s choice to stop underwriting this line of business at Lloyd’s is driven by the fact “the world has moved on, and we just don’t think of aviation as a place where we want to put our capital in the future.”
Regarding international professional indemnity, O’Kane explained that while it’s a great line of business for the firm in general, at Lloyd’s, “it just wasn’t working.”
Bruce Eisler, who leads the business line in the U.S., reportedly said that Aspen can put more capital elsewhere and “get a real return,” explained O’Kane, during the company’s Q2 earnings call.
Combined, the three lines of business discussed above concern approximately $120 million in premiums for Aspen, and while they are not especially capital-intensive lines of business, “there will be a free-up of capital associated with that,” said O’Kane.
Furthermore, the CEO noted that while certain lines on the Lloyd’s platform have been disappointing, others, including cyber, transactional liability, financial institutions, management liability, and many of the other broader marine lines that will be unaffected by Aspen’s decision, are extremely valuable.
“In fact, we will be allocating more capital to these areas,” said O’Kane.
Aspen continues to adjust its operations in order to cut costs and increase efficiency, while at the same time lowering exposures in lines it deems aren’t performing as well as is required in the current market landscape.
As well as pulling back on certain lines at its Lloyd’s platform, the firm recently underlined how reinsurance and other strategic measures has significantly reduced its catastrophe exposure, as it looks to further strengthen its business.
