Liability's a big earner for Lloyd's, says Michael Faulkner
LLOYD'S INSURERS have been dubbed the "new investment bankers" by London taxi drivers. Massive rates hikes have seen the most profitable market for nearly two decades, and observant cabbies have noticed that insurers have been celebrating in a style that was previously reserved for the high-rolling banking sector.
This includes lap-dancing clubs, extravagant client entertainment and sports cars.
Liability insurers have particular reason to be cracking open the champagne this month. This class had been leading the way in the surge in Lloyd's rate rises.
Brit, for instance, reported that its employers' liability and public liability rates had doubled in the past year. Other classes witnessing significant increases include general aviation, space, financial and even marine.
Of further joy to liability insurers has been the Court of Appeal's dismissal of the appeal by Claims Direct claimants of Master Hurst's Tranche 1 decision on the recoverability of ATE premiums. The judge previously ruled that claimants could recover only £621 of their £1,250 ATE premium from liability insurers.
The Claims Direct test cases have now reached their conclusions - claimants will not be appealing the Tranche 2 decision which found that referral fees to claims management companies were not recoverable.
The ripples from these decisions will be felt by the entire ATE market.
But while liability insurers toast their successes, the aviation market is set to be drowning its sorrows. Having been hailed as a booming market last year, aviation rates have been falling during recent renewals. Brokers have reported core premiums down by 10% to 20%. Industry analysts predict worldwide premium income for aviation to fall to between £1.9bn and £2.2bn this year, down from between £2.8bn and £3.1bn last year. The projections are perilously close to the point where insurers will start to pull out.
Aviation insurers are also facing a double whammy that could cost them at least £169m. They are being asked to repay up to £80m to US airlines following the US government's decision to offer cheap war risk cover.
Airlines have been rushing to cancel their third party cover and have been demanding a return of their premiums. Insurers could also lose £89m as US airlines are cancelling commercially bought hull war cover.
The forthcoming FSA consultation paper on prudential requirements for brokers aroused much debate, from not only brokers but also insurers.
Brokers were concerned that one of the models proposed by the FSA - that they should maintain a solvency margin of 5% -- could see many brokers go bust. Insurers are concerned by an alternative model whereby they would guarantee brokers' premiums.
The FSA's second consultation document is also set to cause many smaller insurers massive problems. The paper requires general insurers to have on average three-times capital cover, but smaller insurers may not be able to meet these requirements, especially if writing high-risk business.
Shortage of capacity in the market could also be compounded if insurers are forced to pull out of high-risk business in order to reduce their capital cover requirements.
