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Jan. 1 reinsurance renewals reveal big changes to primary insurers' strategies

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Jan. 1 reinsurance renewals reveal big changes to primary insurers' strategies

Large insurance groups are following Lloyd's of London in getting tough on unprofitable business, judging from discussions around the Jan. 1, 2019, reinsurance renewals, according to James Vickers, international chairman at reinsurance broker Willis Re.

Roughly 50% to 60% of the world's reinsurance renews each year Jan. 1, with a bias toward European business.

'Radical restructuring'

Lloyd's hit the headlines in June 2018 after it emerged that the insurance market was requiring syndicates with three consecutive years of underwriting losses to come up with a remediation plan or leave. It also required all syndicates, regardless of performance, to come up with plans to fix the worst-performing 10% of their books.

"The reality is that every other major insurance carrier is doing the same thing, but they may be doing it a little bit more behind closed doors," Vickers told S&P Global Market Intelligence. He said there had been "some quite radical restructuring" of portfolios and underwriting strategies, with companies either exiting lines of business altogether or cutting back and reshaping portfolios.

In some cases the changes were "far more radical than what Lloyd's has been undertaking," Vickers added.

There were signs that heavy restructuring was taking place beyond Lloyd's when U.K.-based RSA Insurance Group PLC announced in November 2018, that it was paring back its London market business and would exit international construction, international freight and fixed price marine protection and indemnity insurance.

Ups and downs

The cutbacks insurers are making meant less premium for reinsurers in some lines of business. Nicholas Line, chief actuary and director of underwriting operations at Markel Corp.'s London-based international division, Markel International Insurance Co. Ltd., noted that 14 syndicates either pulled out of or cut back in open market property insurance.

"That is going to have an impact up the chain on the reinsurance market as well," he said, adding that he had heard that insurers in the London company market are taking similar action on unprofitable business.

In some cases, however, insurers' strategy changes are proving beneficial to reinsurers. In its report on the Jan. 1, 2019, renewals, Willis Re said there were instances of "substantial increases" in premium volumes that large primary insurers ceded to reinsurers as they reversed strategies to increase their retention of risk. Willis Re said in particular that there had been some large new pro rata cessions for long-tail lines of business.

Still to come

Restructuring and strategy changes could continue to be a theme at subsequent renewal periods in 2019. Other key dates include April 1, June 1 and July 1.

Line noted that only a small portion of the remedial work done by Lloyd's syndicates had a visible effect at the January renewals, and he said more detail would emerge when, for example, large marine books renew later in the year. Marine has been a big focus of remedial plans within and outside Lloyd's.

"It will become clear what people's business plans actually are, as approved, as we go through the year," Line said.