The specialist Lloyd’s of London insurance and reinsurance marketplace has no choice but to reduce its costs, and the market is taking steps in the right direction to address current challenges, according to the President and Chief Executive Officer (CEO) of AXIS Capital Holdings, Albert Benchimol.
“Let’s be honest, I don’t think Lloyd’s has a choice. I think Lloyd’s knows it,” said Benchimol, in response to comments surrounding the ability of the Lloyd’s market to reduce its costs while maintaining an incremental margin, during AXIS’ Q3 2018 earnings call.
For some time now, the Lloyd’s marketplace has looked to address its high overall expense loads, seeking to remain valuable and relevant in a rapidly evolving global risk transfer industry that is being disrupted by innovative technology, which, in part, is attempting to increase the efficiency of the re/insurance value chain.
Intense competition from both traditional and alternative providers of capital, coupled with benign loss years served to substantially lower returns for reinsurers, Lloyd’s market participants included, resulting in a prolonged soft market state that failed to materially and sustainably turn following the high volume of industry losses in 2017.
As a result, efficiency has become key for global reinsurers, and companies and markets of all shapes and sizes have looked to reduce costs in order to offset falling underwriting returns in an already low interest rate environment.
Benchimol noted some of the actions taken by the Lloyd’s market to reduce its costs: “We support and applaud Lloyd’s for their recent actions to mandate the use of electronic placement and reduce unprofitable underwriting. The impact of their pressure is visible in the many announcements of reduced capacity, market exits, and even in the closure of Syndicates.
“My hope is that the recent actions by Lloyd’s will have some positive impact on pricing.”
Ultimately, said Benchimol, Lloyd’s is approaching the challenge in the right way, adding that, “We have no choice at Lloyd’s but to reduce our costs and bring Lloyd’s back to its core value add, which is not to provide capacity for binders and MGAs, but to be the champion and the world capital for innovation and specialty risks.
“And, I think a smaller, more profitable Lloyd’s is more attractive than a Lloyd’s that just provides capacity at a cheap rate. And I have to tell you I’m not the only one who feels that way, and I’m confident that Lloyd’s is going to work in that direction, and you can rest assured that our voice at Lloyd’s will be pushing in that direction.”
Most recently, Securis Investment Partners announced that it’s exiting the specialist Lloyd’s marketplace as its platforms no longer deliver returns that are required by its investor mandate, and other companies have also taken actions that either lower or cease their participation in Lloyd’s.
However, and as highlighted by Benchimol, the market is taking actions to alter the situation and ensure it remains a global hub for re/insurance, which includes mandates surrounding the London Market Group’s (LMG) Placing Platform Limited (PPL), and initiative that targets not only efficiency improvements, but also to further enhance the client service provided by the London marketplace.
It will be interesting to see how the Lloyd’s market performs in 2018, following muted and fading rate increases through renewals despite high cat losses. The market is clearly taking steps to increase efficiency and lower costs, and the impressive adoption of the PPL shows that market participants are eager to assist with the ongoing transformation at Lloyd’s.