Announcement of new Lloyd’s syndicate sparks debate on market conditions
The announcement of a new Lloyd’s syndicate last week could be seen as an encouraging sign that the market has become more receptive to entrants.
The Lloyd’s franchise board, charged with protecting the market’s integrity and reputation, turned away several applications at the end of last year, citing soft market conditions as its reason for the rejections.
However, some market participants warn against reading too much into the franchise board’s approval of the newcomer, and that it is unlikely that the floodgates will open.
Syndicate 1945 – backed by Sirius International Insurance Corporation, a Swedish reinsurance company that belongs to Bermuda-domiciled (re)insurance group White Mountains – is being managed by Whittington Capital Management on a turnkey basis.
Turnkey managers like Whittington effectively offer newcomers a ready-made platform to enter Lloyd’s.
The new syndicate will have initial stamp capacity of £66m and aims to start business incepting on or after 1 July. It will write accident and health contingency insurance and reinsurance business transferred from Sirius’ London branch office.
At first glance, it would seem logical for Lloyd’s to soften its stance at this stage. The international insurance and reinsurance markets have been hit with a string of heavy catastrophe losses so far this year. Loss activity is showing little sign of abating, with flooding and tornadoes hitting the USA in May, and many are expecting an active North Atlantic hurricane season after two relatively quiet years.
The catastrophe activity is prompting much speculation that rates are showing signs of hardening, and not only in catastrophe-exposed territories and lines of business.
However, there are also strong indications that the new Sirius syndicate at Lloyd’s is the exception rather than the rule. Some feel that Lloyd’s has approved the syndicate because it ticks a lot of the franchise board’s boxes: it is relatively small, in non-volatile classes and it is new business to Lloyd’s, yet has been written at the sponsoring company for several years and so is a known quantity.
“It is almost a shoo-in really,” says one market source. “Lloyd’s never said they wouldn’t consider that type of business. If someone tried to transfer some catastrophe business into the market or something like that, it might be different.”
Furthermore, Lloyd’s is vary wary of disrupting the work on its internal capital model for the forthcoming Solvency II regime. “It was difficult enough before to persuade them of the case in a soft market, but with Solvency II piled on top of that the restrictions were even higher,” says the source.
And while the market is making encouraging noises about rates, the jury is still out on whether prices across the board are truly hardening. “Lloyd’s would be pretty cautious about being certain that has happened before they open the doors,” the source said. “We are talking about the early shoots and they will need more than that.”
Making the grade
A spokesman for Lloyd’s supported this view. “Lloyd’s and the franchise board have always been prepared to consider applications but in 2011 the criteria remains at the same standard and there has been no change in the market environment,” she said when asked if those rejected at the end of 2010 would now be reconsidered.
She added that consideration of Syndicate 1945’s application was already taking place before the catastrophe events.
Nevertheless, some of those whose applications were rejected last year continue to monitor the situation. Lloyd’s broker BMS set up a managing general agency, Pioneer Underwriting, as an alternative to a syndicate after being turned away, but is intent on trying again when conditions improve. While saying that it had taken no further action at this stage, Pioneer managing director Darren Doherty said: “We have made it pretty clear we are going to continue with the application.”