London Views
London Correspondent

Brokers Guy Carpenter, Willis and Howden have published reports recently on the January renewal season. As expected, rates increased, but insurers and reinsurers unexpectedly imposed restrictions on terms and conditions. The rate rises were not the headline making success insurers and reinsurers hoped for, but increases were significant. Fortunately, most business in London was conducted before the U.K. government locked the market down on Jan. 5.

The prediction of a hardening market was easily made. The COVID-19 pandemic, the increased losses from the U.S. hurricane season and rising claims in property and casualty business had hit insurers. Unfortunately, insurers also suffered when investment income plummeted.

The renewal season started earlier this year as brokers looked for value for clients, often returning with alternative layers and deductibles, leading to a complicated quoting process for the market.

The sins of the past caught up with many insurers in that, if an insurer had a good record, premium increases were acceptable, but if one had a history of losses, this year’s renewals hurt. In property, Willis reported that reinsurance renewals for loss-free U.S. catastrophe business paid increases of between five percent and 15 percent, but on reinsurance layers that had taken a hit renewal cost between 10 percent and 25 percent.

Casualty reinsurers were anxious to make up ground for their lost investment income but failed to gain much ground. Depending on previous year’s results, rates moved upward by an average of six percent.

Primary carriers feel relieved that the forecast 20-plus percent rate increases didn’t happen. This will relieve the pressure on carriers to increase rates but may be a short-lived relief. Rumor has it that the renewal seasons to come later in the year (April, June and July) will be tougher as reinsurers get their mojo back and sharpen their underwriting pens.

Both buyers and sellers were winners, but the sellers more so. This renewal season’s increases come on top of the last one, and now we have seen one of the hardest markets in recent history. Perhaps the award this year goes to the underwriters who kept their discipline, increased rates and strengthened conditions, which hopefully will show up in reinsurers’ results.

Lockdown 2 begins

This time last year, no one could have predicted that most of the market would be working from home, and face-to-face trading wouldn’t be happening in the traditional way, but after the problems of Lockdown 1, Lloyd’s once again shut the underwriting room.

The U.K. government effectively put the U.K. into a second national lockdown on the first business day after the New Year holiday. Lloyd’s closed the underwriting room effective from 16:00 on Tuesday, Jan. 5. There is no date for its reopening, but Lloyd’s said it will keep this decision under constant review. Best guess is that it’s unlikely the room will reopen before mid-February. The building at 1 Lime Street is closed to all except tenants.

Underwriters are back working from home even though Lloyd’s has an ace up its sleeve. Lloyd’s is opening its virtual underwriting room to all classes of business and encourages underwriters and brokers to sign up for its use. Originally launched in September for U.S. property business, the virtual room can handle all classes. Lloyd’s has enhanced the user experience and made initial improvements.

The latest feature is Meet Now/Meet Later, which will be available in February and will enable calendar integration between the virtual room and users’ calendars. Users will be able to book a meeting from the virtual room, while syncing with their work calendar. Next in line for improvements to the system is video and voice calling. Lloyds will continue to develop the system further to enable underwriters and brokers to effectively and efficiently do business remotely.

Brexit done – the fight begins

The U.K.’s Christmas present from the EU – a trade deal with zero tariffs and zero quotas – was finally agreed on Christmas Eve. Unfortunately for the London market and Lloyd’s, the new trade deal doesn’t make any provision for the U.K.’s financial services industry, and another round of talks will occur to establish the London insurance market’s relationship with the EU.

If the EU’s financial services market disappears, the U.K. will lose an industry worth around $102 billion. The London market’s insurance and reinsurance share of this business is around 14 percent, so it’s potentially a big loss. At present, London market insurers still have passporting rights, which allow them to freely trade across the EU, but these rights are expected to disappear unless the EU grants regulatory equivalence. In the meantime, every member of the 27 countries that make up the EU is determined to get London’s business for its own market.

So now the fun begins. Having negotiated a trade deal that surprised everyone as being generous to the U.K., a financial services deal now follows. The U.K. will want to restore a strong level of EU access, so regulatory equivalence is the goal of negotiators and the London market. March 2021 is the deadline to conclude a memorandum of understanding on the matter, but EU negotiators are unlikely to be that obliging. After all, the trade deal was over two years late in coming.

Ireland is expected to lend support. The U.K. has been an important player in the growth and development in Ireland’s financial services sector, and a number of insurers have set up base in Dublin, so it’s in Ireland’s interest that insurers continue to thrive.

That’s the good news. The bad news is that the EU Commissioner of Financial Services said the EU must not allow itself to be “captured by a system that we don’t regulate” and that the EU must control the U.K.’s insurance market that operates in Europe.

As the governor of the Bank of England said, the U.K. must not become a “rule-taker” as the price for EU access. It seems these negotiations are off to a bad start. With the U.K. government insisting on the U.K.’s freedom to trade, the London market will want the freedom to chart its own course. The governor warned that, if Brussels wants compliance with its rules in exchange for granting access to the EU, the price will be too high.

Lloyd’s goes green

Lloyd’s recently published its first Environmental, Social and Governance Report which details its ambitions to fully integrate sustainability into all of Lloyd’s business activities. What this means is that Lloyd’s aims to keep the economic growth of the market constant without depleting the world’s natural resources.

Lloyd’s has been involved in ESG work for some time and plans to adopt a comprehensive market-wide strategy that aligns with the United Nations’ Sustainable Development Goals and supports the principles set out in the Paris Agreement. It means a cultural change across the entire Lloyd’s market.

Lloyd’s is committed to measurable actions to build a more inclusive working environment. Lloyd’s set gender targets announced during 2020. The phase one target is for 35 percent female representation in leadership positions across the market to be achieved by Dec. 31, 2023. New targets for Black and minority ethnic representation in leadership positions will be announced in 2021. The other notable date is 2025, when the market aims to become carbon neutral.


Lloyd’s is putting meaningful money into these plans. It’s going to allocate five percent of Lloyd’s Central Fund for impact investments by 2022 and will set a roadmap for transitioning to net zero for its own operations by 2025. With Lloyd’s Central Fund last reported to be north of $4.16 billion, the investment amounts to $200 million-plus.

It’s not just its own money that Lloyd’s wants to use. For the first time, Lloyd’s announced publicly accountable targets for responsible underwriting and investment following feedback from, and in consultation with, Lloyd’s market practitioners. These include a target for two percent of premium income to be derived from innovative and sustainable insurance products by 2022.

The bad news is that if your business is not green, it’s time to look for a new insurer. Lloyd’s has set a timescale for the market to phase out insurance cover for thermal coal-fired power plants, thermal coal mines, oil sands and new Arctic energy exploration activities to help accelerate society’s transition from fossil fuel dependency toward renewable energy sources. Managing agents in the Lloyd’s market will be asked to no longer provide new insurance cover for these risks from Jan. 1, 2022. To enable the market to support its customers as they move to new markets, the renewal of existing insurance cover for these types of businesses will be allowed until Jan. 1, 2030.

Lloyd’s will consider how else the insurance sector can best support the global effort to address climate risk and respond to the U.K. government’s Ten Point Plan for a green industrial revolution.

“This is the first time we have set an ESG strategy for the Lloyd’s market, and it represents an important milestone on the journey toward building a more sustainable future. We have the opportunity to play our part in building back a braver, more resilient world. We recognize that the targets we are setting will be challenging, but will also bring new opportunities. We will work closely with our market and customers to help them plan for these changes as we implement a long-term managed program toward sustainable, responsible underwriting,” said Bruce Carnegie-Brown, chairman of Lloyd’s ESG Committee and chairman of Lloyd’s.

Lloyd’s ups target for electronic trading

When Lloyd’s first introduced mandatory electronic trading, the older members of the market sadly shook their heads and said it wouldn’t happen. These same members are now working at home using an office laptop and video conferencing. The vast majority of business now trades electronically.

Lloyd’s took advantage of the various U.K. government restrictions that keep market participants working from home and upped the number of mandatory electronic trades it expects in 2021.

For business that can be traded electronically, Lloyd’s expects managing agents to place 80 percent electronically in the first quarter of 2021. The figure gets bumped up for the remaining quarters of the year, and Lloyd’s expects 90 percent of all applicable business to be traded electronically for these periods. There are no figures for electronic quotations, but these will be released during the second quarter of 2021.

As before, syndicates that meet these targets will get their members a rebate off their annual subscriptions. Syndicates which miss the targets will pay a penalty fee to Lloyd’s. Any syndicate which misses its target by 50 percent will have to produce a remediation plan for Lloyd’s to show how it intends to meet forthcoming targets.

Aon/Willis merger hits red tape

One of the reasons the U.K. was anxious to leave the EU was the amount of red tape that has to be negotiated to get anything done. The latest insurance example is the proposed merger of broker giants Aon and Willis. The EU’s antitrust regulators demanded a full-scale investigation into Aon’s $30 billion bid for Willis which would create the world’s largest insurance broker.

Unfortunately, the EU doesn’t like big firms, unless of course they are owned and based in the EU. Merging the world’s second and third largest brokers elicited regulatory scrutiny due to concerns that a merger would give the combined group increased pricing power. The decision by the EU’s executive, the European Commission, is to seek a full probe into the deal. If all goes well, the probe could take as little as five months or so.

With brokers playing a key role in the London market, Lloyd’s and the London company insurance market are watching the proceeding with interest. If the two become one, the newly merged organization would control much of the London market’s business and give it huge leverage.

Aon is confident of securing EU approval without having to sell any assets to allay competition concerns, but it hasn’t met EU negotiators yet.

The European Commission is very, very protective of its market and has genuine concerns that the merger could significantly reduce competition in markets for commercial risk brokerage services, reinsurance brokerage and the provision of retirement and health and welfare services to commercial customers. The EC sees the services offered to large multi-national customers in property and casualty, financial and professional, credit and political risk, cyber and marine as well as customers in the space and aerospace manufacturing industry as the most affected.

The EU hopes to give the two brokers a decision in early May.

Facility launched for vaccines

Lloyds and Parsyl, a U.S. based Lloyd’s coverholder that specializes in hi-tech cargo insurance, got together with 14 worldwide reinsurers to launch a new facility for global distribution of COVID-19 vaccines. Known as the Global Health Risk Facility, the GHRF will make available billions of dollars of insurance coverage, together with risk mitigation services, to help protect and support the global distribution of COVID-19 vaccines as well as critical health commodities.

The launch of the GHRF, an alliance of insurance and technology partners, is backed by the U.S International Development Finance Corporation, which has approved up to $26.7 million for the facility. The DFC loan will be used to set up a new public-private syndicate, allowing the GHRF to offer cost-effective insurance policies for shipments of vaccines and medical products to developing countries.

The facility is anchored by Syndicate 1796, which operates at Lloyd’s and will begin underwriting in January 2021.

Syndicate 1796 is the first public-private partnership to address a global health emergency in Lloyd’s 330-year history.

Parsyl and DFC are on track to finalize loan terms and documentation in the coming weeks.