Lloyd’s CEO Calls for ‘Underwriting Discipline’ In Face of a ‘Tough Year’

Lloyd’s CEO Richard Ward issued a warning to insurance chiefs to prepare for a tough year ahead with the fall-out from large scale catastrophes, such as the Chilean earthquake and Transocean oil spill, likely to be felt for months to come. He indicated that the “industry is facing a potentially perfect storm this year, making improved underwriting discipline critical.”

Speaking at the Insurance Day Summit in London, as reported on the Lloyd’s web site – www.lloyds.com, Ward stopped short of predicting losses for the industry, but maintained that low investment returns and weakening rates are likely to have a considerable impact.

He warned delegates there is a “significant challenge for the industry worldwide”, but one that “we can see coming and we can prepare for.” He added: “Insurers who keep their discipline and don’t chase risky short term profit will stand the best chance of long term survival.”

The bulletin noted that Lloyd’s profits were close to £4 billion ($5.71 billion) last year – with £1.4 billion ($2 billion) in underwriting profit. However, Ward stressed that the industry must not be distracted by this to the detriment of a long term business strategy, as just one serious catastrophe would potentially wipe out the entire underwriting profit from last year, he observed.

“During the summit, which brings together leaders from across the London insurance market, Ward discouraged underwriters from being lured into writing risky business in the hunt for short term profit and urged them to continue to improve customer services,” Lloyd’s bulletin continued.

Ward also pointed out that it was crucial to focus on looking five years ahead and not just one. “During the financial crisis the insurance industry has performed very well, without the need to fall back on either Government or taxpayer support,” he explained. “We’ve helped protect the economy during the crisis. Now it’s time to protect ourselves.”

The warning comes at an opportune time with the approach of the tornado season in the U.S. and the Atlantic hurricane season. Lloyd’s noted that the peak of tornado activity “varies by geographic region but usually begins in the southern states during April moving through the southern plains in May and June. In the Midwest and northern plains, the peak time for twisters typically comes during June and July.

“The costliest single outbreak, now referred to by weather watchers as Super Tuesday, started in February 2008 and culminated in 82 twisters touching down in ten states leaving insurers with a bill of nearly $1 billion. The US Midwest is particularly prone to tornadoes and thunderstorms as a result of the contrasting air masses found in that area. Cold air from the Rockies mixes with warm and moist air from the Gulf of Mexico, creating instability and an increase in activity.”

Source: Lloyd’s of London