In This Issue
· Why is coverholder business so important ?
· 2011 and what it means for delegated authority business.
· Lloyds targets new areas for growth
· New CATEX Bordereau features
Links for Additional Information
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Delegated Authority = Big Business
According to the most recent information from Lloyd’s, its gross written premium for 2010 was a bit over $35 billion. At a Lloyd’s sponsored conference last fall Lloyd’s personnel said that 25% of the Lloyd’s premium was delegated authority business. That means that the delegated authority premium dollar for Lloyd’s alone was nearly $8.5 billion in 2010. And that’s not including the not inconsiderable amount of US program business retained by US markets.
If you’re a coverholder, a binding broker, or medium sized MGA, you might not have realized that you’re involved in something this big. You can be excused for having thought otherwise. After all, everything is relative. In comparison to the overall global insurance GWP for all insurance, the delegated business is still not much more than a footnote. It’s estimated that the total global GWP is more than $4 trillion or over 8% of global GDP. $4 trillion is a lot more than $8.5 billion by any math.
So why exactly is the binding authority business such a big deal? If you’re a coverholder think about the application process you had to go through to obtain that designation. Sponsorship, character references, investigation, tribunal consideration, etc. all amounted to a pretty thorough vetting process. By the time it was over there was little that your market didn’t know about you professionally. You can be sure that those informal chats about your non-professional affairs probably made it into your file as well.
Coverholder approval is a big deal and signals entry into a select group. Upon qualifying you gain one of the most valuable assets in all that $4 trillion dollar world of global premium –the ability to post the Lloyd’s name on your front door. If you’ve forgotten what you learned as you prepared for coverholder approval evaluation, Lloyd’s takes the protection of its brand name very seriously. In fact it’s one of the primary responsibilities included in the job description of every employee of Lloyd’s.
Here’s where it will get interesting. You’ve read about the unprecedented record of natural disasters that occurred in 2011. The potential of insured losses is almost off the charts. You can be sure there’s a group of underwriters who cringe each time that image of the capsized Costa Concordia appears on TV indicating that 2012 is off to a bad start too.
Last week outgoing Lloyd’s Chairman Richard Ward hinted at record 2011 losses at Lloyd’s as a result of the natural disasters. It’s no secret that much of the global CAT exposure end up either in Bermuda or Lime Street.
CAT models work to offer some predictability for occurrence rates and severity of natural disasters. However if your underwriting book is heavy in CAT exposure, even if spread among different perils and regions , you’re still in trouble when unprecedented floods in Thailand; a huge quake, tsunami and CBI event in Japan; a disastrous earthquake in Christchurch; extremely costly US tornadoes; near Biblical type flooding in Australia; and Hurricane Irene in the US, all happen in the same underwriting year.
There are really only two ways to dig out of something like this and one, premium rate increases, we’ve talked about in the past. The other way is to increasingly diversify the types of risks underwritten and spread them out as much as possible geographically throughout the world.
That’s where you come in.
Delegated authority business is Lloyd’s not so secret weapon to respond to the CAT cover threat and work to ensure that years like 2011, even if nature strikes as angrily again, are balanced by steadier, more predictable business coming from six continents. You can read the recently released “Three Year Plan: 2012-2014” by clicking on the image at the start of this newsletter.
Here are a sample of Lloyd’s goals for the next three years taken from the Plan. “The Corporation will continue to support managing agents’ and brokers’ business in development of activities to improve geographic reach and product diversification… encourage industry capital from countries that would improve Lloyd’s geographic diversification and potentially provide access to new sources of business and broaden the market’s pool of intellectual capital.” And finally, an “Affirmation that any diversity will come from the application of the market’s existing strengths and expertise to new territories and market segments which require specialist insurance expertise”.
It seems that the disastrous record of 2011 catastrophes has worked to spotlight binding authority business. You can be sure that this same realization has been reached by other markets with significant capacity dedicated to CAT cover.
India, Asia and Latin America are New Business targets
If you do spend time looking through the Lloyd’s Three Year Plan you will notice that the hope for geographic expansion of the risk pool lies in India, Latin America and Asia. No surprise there. Each of the three areas already has either a growing indigenous insurance market and/or have outside carriers with a long history of operations there. It is here though that all that work to protect the Lloyd’s brand pays off. When the Lloyd’s Chairman visits a country(and he travels frequently) he is received like a visiting head of state by the local business community.
Part of the goal of those visits is to promote the underwriting opportunities at Lloyd’s as well as to encourage the application of qualified groups with specialized underwriting skills to consider becoming a Lloyd’s coverholder. As that coverholder pool increases in size with additions from countries like Argentina, India, Chile, Sri Lanka and Vietnam the susceptibility of the overall Lloyd’s market to the ups and downs of CAT cover business is reduced. It’s a smart way to do business. Lloyd’s better establishes a more predictable result, increases its premium intake, and expands into new lines of business in new areas of the world. It seems that the “preventive medicine” against excessive CAT exposures, not only can cure the illness but make the patient stronger.
CATEX Bordereau Systems Streamlined for Speed
If you haven’t seen the CATEX Bordereau/Program Management & Reporting System recently you should contact us for a demonstration. We constantly take in feedback and suggestions from our users to improve the product. One improvement is noticeable immediately upon logging into the system. A dashboard pops right up with metrics, graphs and indicators measuring, in real time, critical performance criteria of your delegated authority book.
We configure the dashboard to fit your business. For example if you are a coverholder, binding authority broker or an actual market you would need to see different indicator metrics. We have always had the reporting data but we’ve now fully developed the graphic component to offer country maps that drill-down to county and even post code levels, graphs and dashboard indicators designed to give management a quick, all in one, view of the performance of the business instantly.
More discussion about Solvency II rumbling out of Europe with reports that implementation could now be delayed until 2015. The new head of the German regulatory agency Elke Konig is now reportedly seeking a delay ….
Florida’s BB&T just announced that it was buying the non-life insurance business of Crump for a reported $570 million….
Brown & Brown Insurance purchased Arrowhead General Insurance based in San Diego for $395 million…..
Aon Benfield announced that they had achieved 3% organic growth for the first time since 2009 in their reinsurance broker operation….
(A Quick “Byte”)