The change of name and extension of remit is truly significant; it is a reflection that the market has been reformed through the implementation of Contract Certainty, ECF, A&S and Electronic Policies and now it is about wider collaboration and continuously improving the market through modernisation.

As fundamental reform draws to a close and we move through to modernisation the LMG can address wider subjects that affect our market building the appropriate consensus around any issue that affects the competitiveness of our market. This will ensure that London remains at the forefront of the global insurance industry, enhancing the competitiveness of the London market. And maintaining London’s recently enhanced position in the global marketplace with the confidence to address future challenges as they arise.

A way to save time in keeping up to date
I’m sure you all like to keep up to date with the latest blogs and news on lloyds.com but do you find it takes a long time to find the relevant website or page, or you’ve missed something as it has moved off the front page before you got to it?  Have you thought about using an RSS feed? Once setup you will be able to have all the websites and pages you are interested in, in one place and at a click of a button.  The websites and pages are then automatically updated with the latest information without you doing a thing!  Never miss an important event again!
 
RSS stands for Really Simple Syndication and it’s really easy to setup.
 
Click the link below to find out more about what an RSS link is, how it works and how to set one up:
http://www.lloyds.com/News_Centre/RSS_feeds.htm

The usual Baden scene is of executives with collars turned up against driving rain, criss crossing between the posh hotels where they meet to earnestly discuss the cathartic effect of the latest natural or financial disaster.

But this year it is different in lots of ways. The sun is shining for a start. Also, while the financial crisis hasn’t actually gone away, the markets are more settled than this time last year. Just as important, it has been a benign year so far in terms of catastrophe losses.

It is Autumn and there is still plenty of time for a windstorm in Europe – but for a lot of the reinsurers here it feels a little like Spring.

There are a number of reasons for that. One is that, having come out of the credit crunch relatively unscathed reinsurers have proved the resilience of their product to their clients, according to underwriter Sharon Gallagher of Kiln Reinsurance 510. “Reinsurance capacity is stable and that’s valued by clients. It is incredible in the circumstances just how stable reinsurance pricing is,” she said. 

Richard Chattock, active underwriter with Montpelier Syndicate 5151 agrees that there is increasing recognition of the value of secure reinsurance. “Everyone is aware that the capital markets could go bad again,” he said. 

Reinsurers are even optimistic about the possible effects on their business of Solvency II, the regulatory regime that will take effect in 2012. In his traditional breakfast press call in Baden-Baden, Munich Re director Ludger Arnoldussen said that Solvency II would lead to a renaissance for reinsurers.

Under the new Solvency II rules, recognition of reinsurance and its capital relief effect is no longer limited to 50% (as under Solvency 1) with unlimited cessions possible. “The value proposition of reinsurance companies is greatly improved as a result,” Arnoldussen said.

Reinsurance brokers in Baden-Baden have an extra spring in their step too. They point to a growing trend for cedants to spread their reinsurance shares a little more widely in order to reduce counterparty credit risk. Nick Frankland, chief executive for Guy Carpenter Europe said it makes sense for insurers to achieve a spread of reinsurance within a band of acceptable security: “It is better than having a concentration in that same band,” he said.

Lloyd’s franchise performance director Rolf Tolle, holding court from a comfy chair in the Brenners hotel, said he discerns a willingness among cedants to diversify their reinsurance panels. He believes that Lloyd’s will be a beneficiary of the trend: “We see the amount of business being offered to Lloyd’s is increasing,” he said. “We’re in a good position in terms of being able to offer syndication with good security.”

Of course, Baden-Baden is not completely changed in character and arguments about the necessary direction of the market still fill the air. Mr Tolle, who has been attending the meeting since the late Seventies, has witnessed the market’s ups and downs over the years.

This year is his last as a representative of Lloyd’s because he steps down at the end of the year, handing over to a new director of underwriting, Tom Bolt. “It is clear that an improvement in pricing, terms and conditions is needed in both the reinsurance and underlying insurance business. But I suspect the market will stay flat,” he predicts. “In a sense the market is a victim of its own success because capital has not been destroyed – it has been replenished.”

The survey, which tracks changes in insurance policy renewal prices as reported by North American corporate risk managers, finds that commercial insurance buyers are getting good deals because the global economic recession has suppressed demand for insurance capacity, making underwriters fight for diminishing premium dollars.

The survey cites average general liability premiums, which fell 3.7 percent, and average workers’ compensation premium, which was down 4.5 percent as evidence. Declining sales and payrolls, which are used to calculate premiums, were behind the falls, it explains.

Advisen’s Dave Bradford, editor-in-chief of the survey, said carriers are posting underwriting losses, “but in this recession, they have found it nearly impossible to push through rate increases except in a few especially distressed areas.”

Property insurance policies renewed in the third quarter with essentially no change in average premium. Directors and officers liability (D&O) policies also renewed with no change in average premium.

RIMS spokesman Daniel H. Kugler, a risk manager at tool maker Snap-on, Inc. commented that many companies are buying less insurance, and underwriters feel pressured to keep prices low to hold on to the remaining premium dollars. “It’s still a buyer’s market, and it looks as if it may stay that way for a while,” he said.

Another new report, this time from broker Willis, echoes RIMS findings, saying that “marketplace forces that have led to sometimes frenzied competition among insurers may remain in place into 2010”. The detailed report goes on to explain exactly how benign weather and different marketforces have combined to keep prices down, right across the P&C board.

But Willis’s chairman Joe Plumeri says in his intro to the study that buyers should curb their enthusiasm: “While undoubtedly appreciating the windfall of softening rates, risk managers must also consider the issues of market security and counterparty risk as never before.”

Sage advice: chasing reductions is fine but quality cover does come at a price – and this is the worst possible time to find that your insurer isn’t there when you most need him.

• The market’s recognition of synergy—in order to reap the maximum benefits, we must work together and move in sync
• The market’s commitment in taking full advantage of the standard’s evolution through physical implementation, not stopping short at agreeing the specifications on paper only

This latest 2009 version of the standard focuses on complex business scenarios including:

• Multi section risks
• Declarations
• Subjectivities
• Management of endorsements
• Capturing a richer set of structured information

The market has agreed to implement the ACORD 2009.1 structure for Placing on   19 February 2010 and to incorporate incrementally the above business capabilities throughout 2010.
Along with this decision, the market would deter operations on any other versions of the Placing standard.  This means current implementers would need to complete their own preparations for upgrade by the market agreed deadlines, or risk missing out on their business.
The Lloyd’s Exchange will have the 2009.1 structure in place by Q4 2009.  This means current and future participants on the Exchange can have a head start on the upgrade to the 2009.1 standard should they choose to.

A way to save time in keeping up to date

I’m sure you all like to keep up to date with the latest blogs and news on lloyds.com but do you find it takes a long time to find the relevant website or page, or you’ve missed something as it has moved off the front page before you got to it?  Have you thought about using an RSS feed? Once setup you will be able to have all the websites and pages you are interested in, in one place and at a click of a button.  The websites and pages are then automatically updated with the latest information without you doing a thing!  Never miss an important event again!
 
RSS stands for Really Simple Syndication and it’s really easy to setup.
 
Click the link below to find out more about what an RSS link is, how it works and how to set one up:

http://www.lloyds.com/News_Centre/RSS_feeds.htm

However, the fourth quarter is upon us and broader market conditions appear to be more conducive for more activity. The pipeline looks healthy right now, and historically, Guy Carpenter say the fourth quarter is the second most active of the year. GC’s consensus estimate for the year remains $3bn to $4bn, implying a strong fourth quarter for primary issuance.
One of the other features of this sector, as it begins to mature, is that there is a slug of outstanding risk capital that has matured. In the third quarter of 2009, $300m in catastrophe bond risk capital matured, bringing the year-to-date total to $2.5bn. Another $660m is scheduled to mature in the fourth quarter of this year.

On the other hand, the market for all other sectors continued to be extremely competitive with rates trending down, ample capacity and the broadest terms and conditions seen in years, Aon says.

Most insureds should expect to see stable rates in the short term, brokers agree, while rates for financial institutions are expected to continue to increase.

Willis in London also says that the commercial sector continues to resist the sharp rate increases for D&O insurance seen in the financial institutions sector, with the average premium for commercial business falling 5% in the second quarter. In contrast, some financial institutions have seen “double digit” premium increases, in percentage terms.

Willis stresses that the 5% reduction is for commercial clients with strong risk profiles.

But even these buyers could soon be seeing prices trend up, both brokers warn. “The delicate balance between the forces holding D&O prices down and the need for rate increases could soon shift in the favour of underwriters,” said Michael D. Rice, national practice leader of Aon’s financial services group.

Commenting on the findings of the Willis survey, Julian Martin, executive director of Willis FINEX Global, warned, “Owing to the economic downturn, we are experiencing an increased level of scrutiny and underwriting analysis, meaning that is essential for renewal negotiations to begin early in order to deliver timely renewals.”

You have been warned.

Aon predicts that corporate CFOs will have more say in structuring risk transfer solutions and at the same time, more [non-financial] companies will appoint chief risk officers to complement their risk managers.

Aon also envisages greater use of technology to accurately capture business risk information in order to satisfy the growing demands of insurers fed up with spreadsheets. Better still, the systems will utilize risk data standards so everyone talks the same risk language.

That in turn will lead to greater risk differentiation and clients not being tarred with the same brush by insurer.

Growth in enterprise risk management will be accompanied by insurers innovating around new risk transfer products that hedge commodities prices, for example, and weather related risks. Very big industrial companies will tap the capital markets for facultative capacity.

Compelling as it is, something is missing from this picture and that’s the new risks that are lurking over the horizon and will challenge risk managers and their insurers in the future.

Effective risk management with a systematic approach to structures and risk transfer is to be welcomed. But knowing about the potential risks around the corner so that systems can be adapted to the real world is crucial as well.

That’s why forward looking projects like Lloyd’s 360 Risk Insight and the Lighthill Risk Network are so important.

(Tropical Storm Alberto in 1988 formed slightly further north at 41.5degN). Grace is also unusual in that the storm formed over sea surface temperatures of only c23degC. Normally, tropical storms require temperatures in the region of 26-27degC to form and be self sustaining.

Grace looks as though she will bow out today, and transition into an extra tropical storm.

In Lord Levene’s address to the conference he cited the report adding “Now if your business stores its IT files in Asia or the Gulf of Mexico, and a flood or storm strikes, your systems could fail in London. Suddenly, the wet and windy South of England is exposed, through a computer connection, to a natural catastrophe.”  Indeed, Jaak Aaviksoo, Minister of Defence for Estonia went on to highlight his country experiences when they suffered a nation-wide cyber attack in 2007 over a dispute with Russia over the moving of a war memorial.

The digital risks report itself focuses on some of the trends and emerging risks posed by the revolution in digital and communications technology with the aim of raising the profile of these risks within the insurance industry and amongst risk managers in affected businesses.  Key topic areas included:

• the rise in the number and sophistication of cyber crime attacks;
• highlighting the legal and liability issues surrounding internet or ‘cloud’ computing;
• the risks and opportunities of ‘Web 2.0′ and the unprecedented level of sharing of information that the internet makes possible;
• raising the potential risks due to the increasing trend of using Global Positioning System or GPS within industry and transport; and
• reiterating the fact that this new virtual world is still grounded in the physical world and that natural or man-made disasters could have significant impacts on the digital economy.

Beyond those reports referred to in our report, there are several others that highlight other facets of this interesting and increasingly pertinent risk topic, including several strategy reports that summarise the current infrastructure and threats.  Insurers with cyber-liability and other digital risk exposures will find the following reports worth reading:

• Council of Science and Technology’s report on “A National Infrastructure for the 21st Century“
• The Technology Strategy Board’s (TSB) Network Security Innovation Platform (NSIP) recently published their interim strategic assessment  focusing on the challenges information risk poses to the UK.

The CCRIF is the Caribbean insurance pool which pays out when certain parametric earthquake or hurricane indices reach a threshold.  The pool provides fast liquidity to islands that can see multiples of their GDP wiped out in a single event.  The pool purchases reinsurance and the Lloyd’s market (via Hiscox) has been involved.

CCRIF explain that their intention is to help Caribbean islands increase their knowledge on natural catastrophes and climate change.  It is interesting to see this development in advance of the landmark Copenhagen meeting on Climate Change later this year which, it is hoped, will bring a major change in the politics of climate change.  Many stakeholders have submitted proposals to this meeting and at least two of these relate directly to insurance.

The proposals by AOSIS (Alliance of Small Island States) and the MCII (Munich Climate Change Initiative) both believe that insurers have a key role to play in helping the developing world adapt to climate change.  First they believe that countries must adapt and thereby attempt to offset the growing risk (for example by building flood defences, changing building methods, increasing risk management education); but they both admit that adaptation will not remove all risk and some of the residual risk can be pooled by insurers and reinsurers. 

The new CCRIF announcement is a good example of the education on risk (sometimes called “capacity building”) that adaptation will require.  They also state they will assist with disaster reduction schemes, which makes a lot of sense; by reducing the risk the pool will go further.

Deep and rapid cuts in greenhouse gasses are essential.  Yet there will be many years of unavoidable change (probably at least 100) and the global efforts to adapt will bring opportunities to those adept at managing risk.  Insurers have a lot to offer and need to be ready to act.