Since the Lloyd’s Performance Review in the second half of 2018, the London market has implemented, and continues to enforce, a significant change in approach.  Syndicates at Lloyd’s now have a strict mandate to move away from top line growth in favour of underwriting for profit. 

With the market in such a state of flux, most policyholders should expect some turbulence when renewing their insurances.  It is no longer a buyer’s market nor a given that insurers will be in a position to offer the same coverage, limit or premium, as seen in previous years.  

Now is when the benefits of using a specialist Lloyd’s broker to navigate this tough market will be felt the most.

To know who to contact, click here to see your Australian team and their specialisms.

We now provide commentary from some of our specialist teams in relation to our core areas of business in Australia;

Professional Indemnity (PI) 

As part of the Performance Review, Lloyd’s demanded that syndicates take action to address continuing losses on their non-US PI portfolios, identified across the market as the second worst performing class of business and Australia featuring prominently as one of the worst performing territories within the class. 

Novae, Channel, Brit, Aspen, Hamilton, Chaucer and Pioneer have all, over the past 18 months, exited the non-US PI market with other major players exiting individual segments such as Design & Construction PI. With no sign of new market entrants to replace these departures, there is a continued impact on availability and cost of capacity.  



Syndicates who continue to underwrite non-US PI now have a strict mandate to re-engineer their portfolios with a focus on profit as opposed to growth. In order to achieve this, syndicates are segmenting their portfolios much like a traffic light system identifying business to protect – green; business to improve, increase rates, amend coverage and structure – amber; and business to lose – red, whereby the performance is so poor it cannot be returned to profit. The latter of the three allowing syndicates to make capacity available for more attractive business. 

Impact on clients

Increasingly, PI renewals are taking longer, experiencing unexpected premium increases or restructures such as lower limits, higher deductibles and reduced coverage. Each renewal, no matter how “good” a risk, is subject to this new, in depth approach from the market.  

We’re seeing price rises ranging from 10% to 50% and higher, depending on risk profile, with challenging loss records or higher risk exposure accounts being hit the hardest and proving the most difficult. In addition, risks presented to underwriters at the last minute are being viewed in a poor light, so it is imperative that proposal forms are submitted well in advance of renewal dates to ensure the optimum time to negotiate the most favourable terms from the market.

Directors & Officers (D&O) 

The global directors and officers’ liability (D&O) market is reporting ever-increasing losses with Australia being a particular focus for London underwriters. We are seeing the application of strict underwriting disciplines and rate increases across the segment with an ever reducing appetite for Side C Securities coverage. 

We have identified some key changes in the marketplace that need to be navigated and managed:

• Pricing: Both primary and excess layer rates are increasing even on clean accounts
  
• Capacity: Insurers are becoming ever more cautious about managing their limit profiles and restraining the capacity they are prepared to deploy on each risk
  
• Increased limit factor: Excess layers are no longer strictly following a percentage cost of underlying layers (some pay the same or more than underlying)
  
• Ventilation layers are now being vacated creating gaps and collapsing towers: London participation is in increasing demand on large ASX placements and in particular where Side C coverage is being sought
  
• Private D&O and Management Liability (ML): there are different loss factors beginning to manifest and this is largely due to complimentary lines such as Employment Practices Liability (EPL) and Crime, which have long been included as standard by Insurers producing claims. The challenge is that these component parts have been underpriced or a “throw in” to complete a full ML suite and attritional losses are percolating through. Consequently, some packages are being un-bundled and the private D&O is being purchased standalone.

London is continuing to see a huge volume of Australian D&O business with the local market continuing to contract. The Miller team continues to see success in this segment and is well equipped to find you solutions.  

Financial Institutions (FI) 

Similarly to PI and D&O, post Lloyd’s review FI and specifically Australian FI was identified as one of the worst performing segments and is a sector we are seeing dramatic increase in rates coupled with a decrease in appetite and capacity. All markets remaining in the class are under pressure to illustrate rate increases and a move away from unprofitable sub-sections of risk. 

In particular Investment Management Insurance (IMI) and Financial Planning risks are coming under the most scrutiny with most London markets either moving away from this business entirely or where they remain adopting a very cautious underwriting approach. 

On IMI, where the underlying asset class is pure equity based, there remain a very limited number of insurers available however anything with exposure to the property market and/or property development is an immediate decline from London currently.  Appetite for Australian Investment Managers (or the like) investing into real-estate/development is non-existent at the moment.  Historically there have been a limited number of markets offering the cover in London, however there has been a dramatic withdrawal of capacity and even on renewals, with the incumbent insurers, there is no guaranteed solution.  Options for non-bank lending to retail clients/consumers are also extremely limited. 

Post Royal Commission, London markets have effectively withdrawn from the Financial Planners segment and in some limited instances will still consider renewal business.  We do not expect this to remain the approach indefinitely, but presently there are no obvious signs of markets considering a re-entry.

Property

London and international markets continue to take advantage of the lack of capacity locally for ‘hard to place’ accounts. Typical classes/occupations include recycling, food processing/EPS construction, recycling including car wreckers, multi-tenure buildings, hail coverage for car dealerships, wood, furniture and paper related accounts, mining and insured’s with assets in care and maintenance.

New accounts to London are in general receiving insurers technical rates however those accounts that have had a longer relationship are reaping the benefits of keeping a share (often modest) within the London market for prior years. We would always encourage our clients to keep a small share within London even when, eventually, the local market softens once more.

Smaller accounts (up to AUD25m) prove most challenging with Lloyd's in particular looking for minimum premium income, regardless of the quality and size of risk. We are seeing these minimums gradually creep upwards and although for modest orders we have markets that can consider AUD100,000 (100%) other Syndicates require upwards of AUD200,000 (100%). The ‘Order’ into London has a bearing therefore on what the overall ‘blended’ premium would be.

With International Property D&F (Direct and Fac) being at the bottom of the performing sectors in 2018 we are finding that the London market appetite is constantly changing as Syndicates strive to increase their profitability and cull the less profitable classes in their portfolio. This causes us challenges, however, with one of the largest D&F property teams in the London market and a culture of sharing market information we keep up to date with trends and appetite and are able to find solutions for the majority of the enquiries we receive.  

Although Miller are, on the whole, a London based broker, we work with markets on a global basis and are constantly looking for insurers and reinsurers worldwide who may be able to assist our partners in Australia to find the best solution for their clients.

With any property enquiry into Miller, we would kindly ask for full information to be available (Slip terms and conditions, current policy wording, recent survey report, update on recommendations, loss record past 5 years, schedule of locations and constructions details).

There is a distinct increased requirement from insurers towards Risk Management (RM) information so up to date survey and evidence of insured commitment to RM is now a key requisite.  

We would also ask for confirmation that the local Australian market has been fully exhausted first, since realistically if there is capacity available locally it will generally be more competitive than London markets technical rates for new business.

Casualty

General Liability (GL) has been more shielded this year from the full impact of the Lloyd’s Performance Review, because it was not in the bottom 10 worst performing classes of business. However, market conditions have significantly changed since 2018 and 2019 is proving to be a challenging but interesting environment. GL underwriters are still under pressure for negative GWP growth across their book while simultaneously pushing for 10%+ rate increases across the board (even on well performing business). 

Poorly performing risks which cannot carry increased premiums and excesses are becoming increasingly unplaceable. Following recent large losses in Australia and internationally a number of risks are now extremely challenging with very limited market capacity. These include cladding, bushfire exposed accounts, mining (especially if any tailing dams), scaffolding and plumbers. Pubs/clubs, high hazard leisure activities eg trampoline centres, baby products, security engaging in crowd control & retail cleaning during opening hours all remain firmly outside of appetite. 

On excess of loss layers there is an increased drive to carry a minimum rate of AUD1,000 per million however frequently we are able to achieve lower ‘rates on line’ through our dedicated Miller facilities and have had particular success on rail exposed accounts lately where AUD250m limit is often required. 

There also continues to be a lot of personnel movement on the underwriting side, leading to further uncertainty in the GL market. This is being driven by underwriter frustrations at the business plans being imposed on them and Syndicates looking to stay relevant in the changing market conditions. We are seeing some early movers seeking to fit in with John Neale's (CEO of Lloyd’s) vision for a two tier Lloyd’s consisting of ‘lead’ and ‘follow’ Syndicates (more on this to follow in our next market update). Most notably of these market movements, we have recently seen the departure of the liability team at Chaucer Syndicate 1084, with team head James Meecham destined to join Arch Syndicate 2012 (and a great deal of speculation that his old team will follow him) in a move which we expect to significantly increase Arch’s primary Australian GL appetite. Further moves are anticipated this quarter.

In more positive news, we are continuing to find solutions for the ever increasing amounts of business finding its way into London with the ongoing support of our longstanding market relationships. We are able to add most value on risks with premiums in excess of AUD25,000 or those which require solutions for complex risks where no other London or local markets are able to assist, but of course remain well placed to handle your more ‘vanilla’ enquiries too.

The key requirement in these changing conditions is having all pertinent risk information with a concise summary of the risk and details of expiring markets and premium, as well as targeted terms and conditions, premium and excess. Risk remediation implemented in respect to claims is also key. This allows us to present to Underwriters in a way that even though they are turning away much of what they see, we can persuade them to write ‘this one’. 

Please feel free to get in touch as we can help you navigate through these changing conditions, but rest assured, Miller remain extremely well placed to continue sourcing competitive GL terms on your behalf in London.