January 2016
Lloyd’s stamp capacity has grown by almost 5 percent for the 2016 underwriting year to defy the mounting pressures of a persistent soft market in both insurance and reinsurance.
The Insurance Insider‘s annual stamp capacity survey has revealed that overall market capacity has increased by 4.6 percent, or £1.22bn ($1.77bn), to £27.6bn in 2016.
The growth is a stark turnaround from 2015, when market capacity contracted by a little less than 1 percent to £26.4bn to end seven years of consecutive growth.
Stamp capacity is the amount of sterling business a syndicate is authorised to write in a year of account, gross of reinsurance and net of brokerage.
Stamp capacity is not a perfect predictor of the amount of business that syndicates intend to write, with carriers choosing to maintain different amounts of headroom at different points in the cycle. However, it remains a useful proxy for the amount of business the Lloyd’s market expects to write in a given year.
In increasing its overall stamp capacity for 2016, the Lloyd’s market stands against the stubbornly soft pricing that has plagued the industry in recent years. At the half-year, Lloyd’s reported a 4.6 percent decrease in the aggregate risk-adjusted price on renewal business.
More than half of all syndicates this year were authorised to boost their capacity compared to the previous year – a significant increase on the 31 percent of syndicates that requested to pre-empt in 2015.
Some 33 percent of syndicates decided to hold steady this year, while 16 percent chose to shrink.
This compares to 42 percent and 27 percent, respectively, the previous year.
While it should be noted that a strengthening of the US dollar during the course of 2015 may have also had a positive effect on this year’s sterling capacity figures, the higher number of pre-emptions is indicative of the market’s determination to take on more risk after adopting a fairly conservative approach in 2015.
The growth in capacity could be the result of syndicates looking to expand into new lines of business where rates may be faring better than the core lines of property catastrophe reinsurance, marine and energy business, which have suffered the hardest in the current soft cycle.
Lloyd’s highlighted in its half-year report that casualty lines in particular had seen the largest growth in premium, while noting that immature lines such as cyber insurance were also registering greater interest.
In addition, (re)insurers are looking further afield for business by branching into new territories overseas in their search for premium and writing more on the ground in Singapore, the US, Dubai and elsewhere.
Equally, carriers are allocating increasing amounts of capital to managing general agents as the supply of big-ticket, open market business being brought to London comes under pressure.
Of course, many may question the wisdom of growing in a market where pricing negotiations remain tough.
In writing more business at current depressed rates, the market will see exposure growth outstrip any increase in the top line.
And, notably, early indications from brokers suggest there is little respite to be had from the persistent softening in reinsurance rates.
Willis placed its emphasis on the broad softening of the market and argued that forecasts of a “softening in the softening” had been confounded, with the much-discussed pricing floor proving “elusive”.
Guy Carpenter’s regional property catastrophe rate-on-line index recorded some variation across major regions. However, all experienced decreases of between 7 percent and 10 percent, with international areas registering greater reductions in the index than the US.
