As Lloyd's insurers' attention focuses on the potential of the US and Bermuda markets, the composites are taking advantage back home. Emma Jones reports
While many Lloyd's insurers have got their eye on the US and Bermuda, where current market conditions are offering up potential profit growth, the appetite of composite insurers for UK commercial business has heightened in their absence.
Brokers are spoilt for choice as the top insurers, such as AXA, Allianz Cornhill and Norwich Union, are aggressively driving into the SME market to vie for a healthy slice of the market share.
"With a soft market the mainstream insurers are widening their underwriting footprint and taking business that two years ago they wouldn't take on," explains Broker Network chief executive Grant Ellis.
Brokers are becoming increasingly aware of this and are moving business out of London and into the composite market.
"Generally speaking they prefer that market because it's there where they feel most comfortable," says Ellis. "Brokers are equally mindful of the fact that they don't have to share commission earnings with a Lloyd's wholesale broker."
This movement of risks out of London, combined with the composites' willingness to write business, such as high-risk liability insurance, which stretches beyond their traditional property-led portfolio, has become apparent in some of the latest sets of interim results.
AXA, for instance, reported double-digit growth in its commercial book, despite "competitive" market conditions.
But the same cannot be said for Lloyd's insurers, whose desire to grow UK commercial business has somewhat dampened.
Brit reported a 13.6% fall in UK gross written premiums (GWP) in the first six months of the year to £146.5m with rates also sliding.
It admitted that its UK regional growth plans had been dented due to "increasingly competitive" market conditions in 2006.
Brit's chief executive Dane Douetil says the company has held its strategy of avoiding "short-term price-cut-led" growth. "The UK is certainly the most challenging area for us," he said. "Market conditions have been tough and competitive, but we are just not prepared in the short term to chase after growth goals at the expense of profit."
Instead, many Lloyd's insurers, such as Amlin, Wellington and Beazley, are looking to put capacity into territories such as the US, where market conditions are more favourable and where premium flow is expected to increase further in the second half of 2006.
"A number of the London market insurers have made a big financial push into the regions to show mainstream insurers that they can become top players in the market," says a broker. "The reality is that they're just not as tuned into the cycle in the provinces as the mainstream guys are and they are not prepared to be as flexible in pricing when the market downturns."
Another broker says Lloyd's insurers' lack of appetite for UK SME business could be the saving grace for an increasingly competitive market.
"There is certainly more capacity in the market than before," says the broker. "Composite insurers are writing for income and having to write twice as much business because the bottom has fallen out.
"If [Lloyd's insurers] are pulling away, then it may allow the market to move away from the suicidal levels it's writing at. But the difficulty is that it is going to take a really bad hit for one insurer before any re-adjustment in the market can happen."
The shift in business away from Lloyd's will also hit Lloyd's brokers.
"One thing that this will do for the Lloyd's and London wholesale brokers, who don't have direct customers and so rely on the regional market for business and split commission, is put a huge amount of pressure on them," admits an industry insider.
"Unless they are hugely profitable and have plenty in reserve, then you may find that a few start to look over their shoulder as turnover starts to plummet."
Despite displaying a certain amount of apathy towards the UK market and the flow of new business running dry in some classes, such as fleet insurance, Lloyd's is still considered by regional brokers as a good market in which to place business.
"Lloyd's is the only consistent market to place business in," says Ellis. "Prices may ebb and flow, but whether it's a hard or soft market you can always place higher risk business there."
But, whatever the conditions, as one broker puts it, good business is good business and will always get placed somewhere. For now, the preferred place, for SME business at least, seems to be with the composite market. IT