Insurance Times analyses where brokers have sought to place poorly performing business expelled from Lloyd’s in the last year

Across the UK and global commercial insurance markets the signs are there that the full impact of Lloyd’s profitability review is beginning to take hold.

Marsh’s Global Insurance Market Index recorded a UK premium price rise of 6.3% year-over-year for the second quarter of this year, while the global average price rise was 5.8%. This was up significantly on Marsh’s reported Q1 price rises of 2.9% in the UK and 3.0% globally – and was the largest pricing increase recorded since Marsh began the survey in 2012.

Rates are reported to be rising fastest in the classes most affected by the Lloyd’s Decile 10 directive, where Lloyd’s reviewed the bottom performing 10% of each syndicate’s portfolio, and imposed capacity limits on these poorly performing lines.

However, for the expelled business, blamed for two consecutive years of heavy market losses at Lloyd’s, brokers have a job in finding a new home for clients amid capacity cuts and a lack of appetite for this underpriced business.

Gerry Sheehy, chief executive of marine cargo MGA Fiducia, told Insurance Times he had been approached by a broker looking for Fiducia to take the final 30% of a client’s risk.

However, Sheehy said the account was priced at a fifth of where it should have been.

“There are a lot of brokers out there that are struggling to place some of this business,” Sheehy said. “What they need to do is look at some of this business on a more realistic basis.”

Broker responsibility

He said it was up to the broker to tell clients when they should be paying substantially more.

“Syndicates need to be building up a fund for some of the larger losses, but the issue is you’ve got a broker that’s desperate to retain the business, so they’re actually trying to renew the business on expiring terms,” he said.

Sheehy said most of the clients affected by the Decile 10 review are now paying more realistic premiums.

But this case highlights that there are still syndicates willing to accept significantly underpriced risk.

Sheehy said the 70% already placed by the broker was possibly for commercial reasons, where the broker already places a lot of profitable business with the syndicates.

For the majority of syndicates in the marine cargo space, Sheehy said he was seeing increases after years of business being underpriced.

These underwriters are a little bit out on their own because everyone else at Lloyd’s in the cargo space is doing a proper job,” he said. “There’s not that much bad business floating around that hasn’t got a home - I think most of it is being written on the proper basis because brokers have nowhere else to go with it.”

Company market

Outside of Lloyd’s though, another possible destination for this business is the company market.

Many syndicates are owned by larger firms operating in that market.

Sheehy suggested brokers are getting around income restrictions at Lloyd’s by turning to place the business with the company behind the syndicate.

Alternatively for more marginal business, he said brokers are approaching continental insurers, which he said have a “more relaxed approach in how they underwrite”.

MGAA chairman Charles Manchester, said on the international side in particular, more business had gone to local insurers which are more open minded about writing business at higher rates.

But among syndicates looking to migrate business to the wider company in the face of income restrictions, Manchester said firms had to decide carefully on how they priced the business.

“If the business is losing money, unless you can see a way to make it profitable why would you write it in a company?” Manchester said. “The Decile 10 project has focussed everybody’s minds on these lines of business, whether they be inside Lloyd’s or not.”


Increased rates might make the affected classes look more attractive in a couple of years, he said, but that writing unprofitable business to keep hold of premium was now less appetising.

“I suspect at the beginning that was a possibility, but the PRA has made it clear that they would be watching insurance companies to see if they were moving loss-making business into the company market away from Lloyd’s,” Manchester said. “So they are going to need a good story if the regulator looks closely at them.”

Hiscox reported average rate rises of 5% in its London market portfolio amid wide variability. Some classes were up around 50%, but other lines were still seeing rate cuts. The most pronounced increases were seen in US public company D&O, cargo, marine hull, major property and household.


Of the business to leave Lloyd’s through the Decile 10 directive, Hiscox global retail chief executive Ben Walter said the domestic US excess and surplus (E&S) market was a destination for some of this business.

“The first and second quarter earnings reports from the domestic US E&S players are talking about premium flow that is coming out of London and back into the domestic market,” Walter said. “Whether that’s coming back at a rate that’s adequate that’s for them to decide.”

In February Michael Kehoe, E&S insurer Kinsale Insurance president and chief executive, said in an earnings conference call that actions from companies to cut underperforming lines to improve profitability had presented opportunities for companies like Kinsale.

“For a healthy company that’s been disciplined in its underwriting, it’s a pretty favourable opportunity to not just grow the business but expand margins at the same time,” Kehoe said.

S&P reported in March that E&S business written had grown by 9.4% on last year.

Hiscox chief executive Bronek Masojada agreed that much of the business will have stayed in the US rather than come to London – something Masojada said he was not concerned about.

“My view is that this is part of the business that was making Lloyd’s perform poorly,” he said. “I’m very happy for somebody else to come in and do it, if they think it’s a great opportunity for them to do it at an even cheaper price than we are.

“Eventually the law of economics affects everyone and that is the case.”