During the fourth quarter of 2018 we saw a shift in market conditions to a slightly more difficult trading environment.
State of the Market for Financial Institutions

This was to some extent driven by market sentiment following an almost unprecedented period of favourable conditions but also the Lloyd’s of London business plan approval process and Decile 10 review.

Annually Lloyd’s reviews and approves individual syndicate business plans for the coming year. The process for 2019 plans was more involved than previously with added focus on lines of business and syndicates that were either loss making or not making adequate returns. The result is that a number of syndicates have ceased to write certain lines of business and we estimate a reduction in the overall stamp capacity for Lloyd’s syndicates of 7.5 to 5%.

It should be noted that this decrease will not be spread equally across all business lines so some classes and syndicates will be given room to grow while others will suffer disproportionate reductions. Fundamentally, restricting the amount of premium a syndicate can write has a detrimental effect on premium rates as it removes competition from the market place by restricting appetite for new business.

Turning to the specific conditions within the financial institutions market place, whilst we expect to feel the effects of these reviews, we are not expecting quite the changes that some have predicted. We would point to the following factors:

  • Decile 10 was a performance review focussed on improving profitability of certain syndicates and classes of business and for the most part the Financial Institution insurance market remains a broadly profitable class.
  • Lloyds of London is not by any means the only provider of financial institutions insurance as we have access to a number of other company markets.
  • Overall global market capacity is at the same levels as 2018 which in general terms is a surplus for many risks.

Turning to specifics, this is how we expect renewal pricing to manifest in 2019:

  • An exacerbation of the existing two tier market for financial institutions
  • Core financial institution business for example SME UK, fund management and challenger banks to remain at flat rates or modest single digit increases
  • We expect to see low double digit increases for classes of financial institutions that are viewed as more problematic for insurers such as emerging markets, life insurance and assureds with large limits of insurance or material claims.

Our recommendations for 2019

  • The formulation of a realistic and clear strategic plan agreed in advance of the renewal will mitigate uncertainty and deliver results tailored to your specific requirements.
  • Make strong use of insurer competition to ensure good leverage and a full evaluation of the market place.
  • An early start to the renewal process will assist in competition generation and also allow extra time for insurers to complete due diligence and potentially ask more questions than usual.

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