The situation in London and similar insurance and reinsurance markets is “unsustainable” as soft pricing, excess capital and high competition are leading underwriters to make decisions they may regret, according to Argo Group CEO Mark E. Watson III.
In a letter to shareholders Argo CEO Watson recognises the tough re/insurance market environment and suggests that things have gone too far, particularly in the Lloyd’s market which he singles out as “complex and difficult.”
“We know that the situation in the London market and others like it is unsustainable,” Watson explains.
“The pressure on pricing in those geographies will ease only when our industry as a whole takes responsibility and makes some deliberate changes,” he advises.
The London subscription re/insurance market has been impacted by weight of capital and competition, resulting in a softened market which Watson now feels could be leading some underwriters to make mistakes.
“There is still more supply than demand in the London subscription market. This is one of the most complex and competitive markets we have seen for some time, with sustained pressure on pricing tempting some syndicates to make unwise decisions,” he wrote.
But at Argo, Watson insisted that this is not the strategy and explained that the newly enlarged platform, with the addition of Ariel Re which it acquired this year to help it expand further into reinsurance, has positioned Argo at just the right size in the market to have options and to sustain its profits despite the competitive pressures.
Watson commented; “While conditions are tough, our strategy is solid. We exercise controlled management of expenses and refuse to chase top-line growth, preferring to wait and find risks we can underwrite more locally.”
Finally, Watson’s letter provides some useful advice for the market, which we repeat here in full:
We must no longer refuse to adopt processes and protocols that make us more efficient.
We all must commit to addressing the real, evolving needs of customers rather than dusting off well-worn products for their consumption.
Brokers, sitting close to their customers, must acknowledge a duty to ask about changing needs, consider them and help us all respond.
We also must resist the temptation to sell short-term solutions for the long-term needs of policyholders.
Those policyholders too must admit that as long as they insist on paying bottom dollar, they will have neither the coverage nor the service they will surely need when a catastrophe hits.
Lastly, investors in our industry must be rational in their expectations for returns given the environment in which we do business.
