Swiss Re Sigma Study Examines London Market

July 5, 2002

A New Swiss Re Sigma report examines the state of the London Market, describing the effects of the sweeping changes that have occurred over the last decade, the ongoing consolidations, the market’s continuing underperformance and the overall decline in London’s market share.

Swiss Re’s bulletin announcing the report states that, “The London Market is the most important international transaction centre for insurance risks, despite having declined in importance slightly in the 1990s, mainly as a result of the severe crisis at Lloyd’s. At present, the London Market accounts for a share of about 10-15% in the large industrial risks and reinsurance business world-wide, while its share in marine and aviation insurance continues to be significantly higher.”

The announcement, which highlights some of the conclusions in the Sigma Report, notes that decreasing premium rates and the Sept. 11 attacks “have resulted in massive losses for London Market insurers and Lloyd’s syndicates”. While rate increases have accelerated after the attacks on the U.S. the market is still particularly “susceptible to the cycles affecting the global insurance industry, and its overall performance has been inadequate.

The study notes that “On average over the past decade and more, the London Market insurers achieved a return on investment of less than 7%, which is not enough, considering the wide fluctuation of their results. In the past twenty years, Lloyd’s has made more losses than profits.”

It also describes the changes in capitalization which have occurred, particularly at Lloyd’s, noting that, “Since the admission of limited-liability corporate capital (as opposed to private investors with unlimited liability, known as Names), the nature of Lloyd’s has been radically transformed: de facto insurance companies have been set up within the Lloyd’s framework. Non-UK insurers, especially from Bermuda and the US, currently control just on half of Lloyd’s overall capacity.”

Discussing the consolidations which have occurred over the past decade the study found that, “The number of active insurers has more than halved, with the withdrawal of most of the UK insurers being particularly striking. However, the decline in the number of Lloyd’s syndicates from 400 to 86 has less to do with the general shake-down in the insurance industry than with the shake-out that followed the major crisis Lloyd’s went through in the early 1990s.”

Swiss Re’s report isn’t all negative, however. It still sees the London market as occupying an important place in the global insurance market, due principally to the “high density of brokers and insurers and the highly developed infrastructure, including specialised service providers.

It also cited the recent cooperative initiatives between Lloyd’s and London’s International Underwriters Association (IUA) as important moves in strengthening the market, and indicated that it would help to “ensure that London will remain the leading market-place for insurance risks in the future.”

The entire report may be downloaded at Swiss Re’s Web site:

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