London Views


London Correspondent


London underwriters continue to increase rates and take advantage of a hardening market.

Managing agent Hiscox’s latest trading statement shows rates accelerating further in the third quarter, with aggregate rates up 18 percent year-to-date. The interesting thing is that rates are up across the board. In almost every line the direct market is paying more. U.S. D&O and general liability rates have hardened as have rates in the Cinderella marine market, which suffered significant declines in the last few years. It’s not just the direct market that is seeing big premium increases. The market is hard in the reinsurance and retrocession areas with rate increases in double digits for reinsurance and 20 percent-plus for retrocession. Despite these increases the mighty Munich Re is demanding higher rates for the 2021 underwriting year.


A number of factors are driving rates upward. Supply and the demand for top quality secure capacity is paramount. In addition, underwriters are exercising discipline and taking advantage of primary insurers’ reluctance to keep too much of a risk when faced with ongoing economic uncertainty.

According to broker Arthur J. Gallagher, the current market environment is not the traditional hard market. Instead, this market is underwriter driven with underwriting profits being demanded by insurers and reinsurers. Gallagher points out that in a traditional hard market, capital, and consequently capacity, is reduced, limiting the availability of cover. In the current market, underwriters need to make an underwriting profit because investment returns are so low.

While we have seen this picture before, it has never occurred with the economic uncertainty of COVID-19 forcing risk takers to run for cover.

Gallagher said carriers remain intensely focused on underwriting discipline, ensuring they secure the right terms and price on certain lines of coverage.

The broker’s predictions are that a hard market will continue throughout the rest of 2020 and through all of 2021. This fits in with Munich Re’s forecast of more hardening across the reinsurance market at the upcoming January reinsurance renewals. Like Gallagher, Munich Re believes the aim of the industry is to remind underwriters that their goal is to produce profits. Low investment returns are hitting everyone and, add in the COVID-19 pandemic and lockdown of economies, it is easy to see where the pressure for a hard market is coming from.

Like many insurers and reinsurers, Munich Re is focused on underwriting discipline and pricing adequacy as well as reducing cover that has been too generous in the past. Munich Re said the job of a reinsurer is to underwrite risks at prices and terms that enable the company to make a profit for its shareholders.


Lloyd’s back in lockdown

With COVID-19 rampant in parts of the U.K., the U.K. government imposed a month’s lockdown from Nov. 5. While anyone undertaking essential work can continue, the lockdown has restricted the days when Lloyd’s and the London market will be open. Individual insurance companies will make their own arrangements, but the Lloyd’s market Underwriting Room is open only one day a week.

For underwriters and brokers this could not have happened at a worse time. London is in the middle of its 2021 renewal season, and face-to-face contact is important when negotiating multinational insurance and reinsurance deals. True, the electronic systems are up and running, and some risks are ideally suited to a video meeting, but the big risks may need as many as two or three underwriting staff working together to adequately establish and fix the correct rate.

Lloyd’s said in order to provide access to the market during the crucial period in the run-up to Jan. 1 renewals, the difficult decision was made to reduce the number of days the Underwriting Room is open. Until Dec. 2, the Underwriting Room will be open for all classes of business every Wednesday but will be closed for the rest of the working week.

At least the market has learned from the last national lockdown. Lloyd’s, together with other insurers, now operates a COVID-19 secure working environment, with extensive measures in place to ensure the safety of everyone who comes into the insurer’s buildings. For Lloyd’s this means being able to keep its London and Chatham buildings open.

The rules of access are as before, and the same safety guidelines apply. Once again, those working in the market will be social distancing, regularly washing hands, following one-way systems and wearing face coverings in shared spaces, as well as registering on the government’s National Health Service test and trace app.

Lloyd’s reminded everyone the U.K. government guidance is that people should come to work only where there’s a real need. Once lockdown has ended, Lloyd’s will be back to its class of business rota that has been in operation for some time. The rota restricts the classes of business transacted on any one of the first four days of the week to three or four different classes, but all classes can be transacted on a Friday.

Brokers are advised to book appointments with underwriters in advance as there is limited space for queuing in the building. Brokers and underwriters will be able to connect to those outside of Lloyd’s via the digital booths in the coffee house. So far, 179 underwriter and broking firms have returned to the building.

New rules for binders

While Lloyd’s underwriters had a penchant for writing U.S. binders and delegated authorities over the years, coping with the information, or bordereaux, supplied by coverholders is daunting. Different coverholders do things in different ways, so Lloyd’s brought in a standardized approach known as Lloyd’s Coverholder Reporting Standards. These are updated regularly, usually without notice, but the next set of changes is major, and Lloyd’s gave coverholders notice so they can get their acts together.

In the future, all delegated authority data will need to be submitted to a new system known as the Delegated Data Manager (DDM). Coverholders know this currently as Delegated Authority SATS. Lloyd’s believes this move should improve data quality, support ease of reporting and other delegated authority processes. Lloyd’s is currently consulting with its market associations and the International Underwriting Association on the best way forward with this project and how things will work on a day-to-day basis.

The submission of data in the future will be based on five principles, and the good news is that coverholders are expected to have until October 2021 to prepare, as these conditions of trade will only apply to all binders incepting from then. These conditions will become active only if all prerequisites set by the market are met.


The first principle of the condition of trade is there must be focus on the capture and transmission of consistent and high-quality data using the Coverholder Reporting Standards. These standards will be enhanced in a phased approach. To be fair, most information supplied by coverholders is of good quality, but coverholders can struggle when writing binders for the first time. Even when established, coverholders can have problems when existing, experienced staff leaves and their replacements take time to get up to speed.

Principle two states that Lloyd’s managing agents or brokers are the preferred method of submission to the DDM of premium paid, risk written and claims information.

The third principle relates to how the delegated authority will be set up on the Delegated Contract Manager. The contract administrator for the submission of risk written, premium paid and claims bordereaux to DDM will have to be identified so there will be no room to hide.


Principle four may worry everyone. This principle states that rigorous data validation and business controls will be applied to bordereaux submissions to assure the quality of data distributed from the DDM, which will be used by Lloyd’s for tax and regulatory reporting purposes. Lloyd’s said it also may use this information to drive central accounting and settlement in a more automated manner, so it’s got to be 100 percent accurate.

With principle five, Lloyd’s will set up an elective, central customer service for inputting and mapping coverholder data into the DDM.

If the market agrees and the system works, it will unlock myriad benefits for policyholders, brokers and insurers. Brokers and underwriters will be able to benefit from the connected accounting, payments, endorsements, claims, renewals, and reporting processes.

Business interruption appeal

The appeal by insurers against the U.K.’s High Court decision on the Financial Conduct Authority’s business interruption case is going through the U.K.’s Supreme Court, and a decision is expected soon.

As with the original legal action, the court will focus on numerous issues regarding the construction of the representative wordings. What concerns the insurance and legal industry is the decision in Orient Express Hotels v. Assicurazioni Generali. The Supreme Court will also consider whether the lower Divisional Court was correct in its analysis of the case. To make life interesting, the panel of judges hearing the appeal will include judges who were the original arbitrators in the Orient Express case and one judge who heard the appeal from the arbitration award.

Orient Express Hotels v. Assicurazioni Generali goes back to Hurricane Katrina in 2005 when the policyholder’s hotel was damaged by the hurricane.

The insured could not satisfy the “but for” test of causation. Even if the hotel had not been damaged, it would have suffered the same business interruption loss because of the devastation to the surrounding area of New Orleans. The business interruption clause of the policy should have been drafted to cover, not only losses caused by damage to the hotel, but also losses caused by “other damage resulting from the same cause.” Unfortunately, the clause used was only concerned with the damage to the hotel and not the underlying cause of the damage. Lloyd’s underwriters hope the court follows the same argument which would reduce their BI losses from COVID-19 issues.

Lloyd’s publishes Blueprint Two

Lloyd’s has published details of Blueprint Two, its delivery plan for the next phase of the market’s modernization. Lloyd’s aims to build the most advanced insurance marketplace in the world and is using its Blueprint projects to bring this brave new world to life.

Blueprint Two is a two-year program that breathes life into the ambitious projects published in Blueprint One last year. If all goes well, the market will become a digital ecosystem, powered by data and technology that will deliver better value at a lower cost for Lloyd’s customers.

Lloyd’s believes Blueprint Two will enable the transformation of the market. The target is over $1 billion of cost savings which represents around a three-percent reduction in operating cost. This is achieved through greater efficiency, reduced bureaucracy and more automation. The figure is based on research carried out with a sample of managing agents and brokers, looking at their current processes and how much the cost decreases if they adopt all the Future at Lloyd’s solutions.

With Blueprint Two, Lloyd’s promises an intuitive, straight-through process for placing and binding risks. This will enable growth through global reach and easier access to new products and services. It’s not just placing business that’s improved. Blueprint Two will enable identification of valid claims on notification and tracking claims throughout their lifecycle, resulting in faster settlement times, improved customer experience and no more lost files.

Lloyd’s claims we are about to see the most advanced insurance marketplace in the world.

Bruce Carnegie-Brown, chairman of Lloyd’s said, “The pandemic has demonstrated that Lloyd’s can adapt in a fast-changing environment, and this has only increased our hunger to get on and make further change happen. As a market, we have the appetite and energy to execute on our plans for the future, and in doing so, we have the makings of real, transformational change. Blueprint Two is our roadmap to get there, and I’m confident that together we can make it happen.”

Lloyd’s drops electronic exchanges

Lloyd’s changed its plans and decided not to go for its own electronic insurance exchanges. The market was expecting details of the planned exchanges as part of Blueprint Two, but instead heard that Lloyd’s will now work with the existing exchange platforms. Officially, Lloyd’s made this decision to speed up the underwriting process and cut costs, but the market wonders if the problem of constructing two exchanges was too difficult.

The original plan was for Lloyd’s to build two electronic exchanges – one to handle simple risks and the other for complex insurance transactions. Earlier this year, it trialed the electronic exchange for simple risks, but then things stopped. One theory is that the U.K. government’s imposed lockdown from March to June this year forced Lloyd’s to close the underwriting room and made the market use existing PPL and other exchanges immediately. Lloyd’s found that these existing exchanges could cope with the market’s needs and that there was no case for a Lloyd’s specific exchange. As Lloyd’s CEO John Neal said recently, the COVID-19 lockdown has shown the market can operate when the floor is closed.