Like it or not, private equity involvement is only going to increase, and London market underwriters should welcome the benefits

How things can change over a short period of time. For as long as I have been practising insurance law, there has been a comfortable balance between the large composite insurers and their smaller, more specialist London Market underwriters.

The London Market has been happy to leave the big volume personal lines business to the insurers and increasingly for that to be driven by the aggregators, while they have focused on, in many cases, the more adventurous and individual risks. In good years, that has seen the London Market enjoy phenomenal results - but a series of natural disasters and a changing world has put that model increasingly under pressure.

It is impossible to open a trade magazine at the moment without reading about the latest speculative takeover bid or acquisition target. The press is rife with stories and predictions about potential 'unions' and the vicinity benefits that could or would result from those mergers. In reality, very few have actually been announced but that may be more a matter of timing than any suggestion that the mergers will not take place.

We live in a world where big is beautiful and commoditisation is king. It is inevitable that smaller operations will look to come together with like-minded and culturally similar organisations, if only as a defensive move.

With the world of private equity re-awakening and possessing deep pockets of uninvested sums, niche underwriters could prove an enticing prey. But why stop there? Later this year, those same private equity funds will be permitted, by implementation of the Legal Services Act, to buy the law firms that the underwriters rely upon to help them control their claims spend. Suddenly you have got a very workable model and a very good base from which to expand.

With continuing difficulties being experienced by commercial organisations in gaining access to working capital either from investors or high street banks, the involvement of private equity, with considerable sums at their disposal, may appear to be not such a bad thing. It might give London market Underwriters the chance to rebuild lost competitive advantage in some areas and enable lawyers to secure their client base.

Whatever our private view as individuals, there seems to be a relentless direction of travel.

Tim Oliver is president of Forum of Insurance Lawyers (Foil)

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