Insight and Intelligence on the London & International Insurance Markets 24 Apr 2018

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A truly dispiriting prospect

  • Mark Geoghegan 3 April 2018
  • Public companies are like teenagers incessantly live-blogging on social media.

    Like the kids, they feel they have to provide us with a running commentary on everything that they are up to.

    No sooner does one quarterly reporting period end than another begins.

    What little gaps that still exist in this deluge are interspersed with 8-Ks and RNSs, lest investors be left outside the eternal loop of information for more than a second or two.

    Or as the teen would have it: Too Much Information (TMI).

    Just as the printing of money devalues a currency, so data inflation has rendered much corporate communication almost valueless.

    However, once a year our industry provides us with some commentary that is really worth reading.

    The best part for you is that this wisdom comes for free and is available to anyone with access to a computer.
    Every spring, some of the insurance world's best-run private businesses report their results.

    These are the non-aligned Lloyd's managing agents. The old-fashioned Names-backed syndicates.

    The key factor that makes their communications so refreshing and enlightening is that they are not talking to their investors - they are talking to their capital providers.

    There is a huge difference.

    Just ask a lender or a provider of last-resort reinsurance relief. These are the high priests of our business and the really valuable disclosures always happen in the absolute privacy of their confessionals, not on Edgar.

    The result is often brutal. It's the opposite of TMI. It's not always what you might want to hear, but precisely everything you need to know.

    So what do we need to know today?

    Look no further than two of the consistently best-performing, most-stable and well-run Lloyd's managing agents - MAP and SA Meacock.

    "This may be the last significant profit for a little while," is the opening line from David Shipley, chairman of MAP.

    Given what follows, this is something of a soft opener.

    Shipley rounds on those who have taken gross cat losses out of kilter with the estimated return period of the 2017 industry insured loss. He says this raises questions of "competence and even potentially of capital adequacy".

    Shipley says it is likely some businesses do not properly comprehend the cat exposures they have assumed.

    But he is just getting warmed up. Despite all the improvements in Lloyd's oversight, he concludes: "Businesses may be inadvertently trading against the Central Fund, just as they were when I came into the market over 40 years ago, a truly dispiriting prospect."

    His active underwriter Richard Trubshaw is no less brutally honest.

    Despite a corner being turned and the syndicate seeing improved 2018 volumes at slightly better technical pricing, the margins on offer are still "way short of historic norms" and he does not see a capacity crunch like those of 2002 or 2006.

    But MAP has already managed its book down to its core (it only used 37 percent of capacity in 2017) and doesn't need a hard market from which to grow - merely a little dislocation so that it can "regain lost ground simply through pricing business properly".

    The problem is it is up against global businesses with massive firepower and "a much higher tolerance of underperformance" than he has.

    Over to Mr Meacock for the last word. He is also someone whose property catastrophe account has been trimmed to the bone.

    He said: "We have been horrified - since those winds blew tens of billions of dollars of capital out of insurers' books - at the almost total lack of a positive response on rating levels from the markets."

    So, there you have it. The market is horrific, prospects are not much better for 2018 and undemanding capital is ruling the roost, diluting the Lloyd's franchise and possibly threatening the Central Fund.

    A truly dispiriting prospect, indeed.

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