According to a survey conducted by the Lloyd’s Market Association (LMA) this August, 68 per cent of casualty treaty underwriters believe that by offering more relaxed terms and conditions, the market could be repeating historical mistakes. Of those who responded, 95 per cent said that they had seen softening of terms and conditions in the international casualty market and 39 per cent believed that more than half of those changes were having a material impact on underwriters’ exposures.
Worryingly for the market, 71 per cent of respondents thought that differential terms across a placement were becoming more prevalent at Lloyd’s. Differential terms are when some following carriers on a reinsurance slip or on a different layer underwrite the risk on terms and conditions different to those agreed by the slip’s lead carrier.
In terms of market conditions, underwriters felt that rates were at the bottom of the cycle, or were approaching bottom. The vast majority felt that current prices were unsustainable. Considering these conditions, underwriters were surprised that clients were not buying more international casualty reinsurance protection.
Two thirds of underwriters said that they had declined more renewal business in 2015 than the previous year. Broadening terms and conditions was the reason most commonly cited for their decision not to renew, followed by pricing considerations and poor loss experience.
Patrick Davison, the LMA’s senior executive – underwriting, said:
“This is a fairly informal survey but its results point strongly towards a buyer’s market in which traditional underwriter discipline is under considerable pressure.
“The growth in the prevalence of differential terms is particularly disturbing. These create headaches for the market’s back office and the efficiency with which claims in a subscription market can be managed. Differential terms might be one indicator that some reinsurers have concluded further amendments to coverage or retentions are unsustainable.
This view is supported by the clear perception in the market that the bottom of the cycle is approaching, as highlighted by the increasing number of underwriters declining business.”
The LMA’s survey of members of its international casualty treaty business panel took place during August 2015. Respondents represented three quarters (by Gross Written Premium) of the international casualty treaty market in Lloyd’s.
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