Daily briefing: Wednesday - Because nobody's immune to motor

The UK motor market was always traditionally viewed as one of Lloyd’s of London’s safer investment havens. But this perception has changed dramatically in recent years as Lloyd’s syndicates have shared in the bodily-injury claims induced haemorrhaging of cash that has afflicted the UK motor market.

Lloyd’s insurers were stung particularly hard, posting a combined ratio of 151.5% for motor insurance, significantly higher than the market-wide figure. Equity Red Star is estimated to have clocked up losses of around £355m over the last two years alone, culminating in yesterday’s decision by Lloyd’s to censure the company over failures in its reserving policies.

According to Association of Lloyd’s Members chairman Anthony Young, more than 1,000 individual Lloyd’s of London investors stand to lose money due to their exposure to the Insurance Australia Group owned-insurer. Young has estimated that the names that have invested in Equity’s Syndicate 218 could be collectively out of pocket to the tune of £180m.

Young, when he spoke to Insurance Times last summer, had already flagged up his concerns that a sizeable chunk of his members had been rattled by the heavy underwriting losses incurred by motor insurers in 2010.

Sabre Insurance chairman Keith Morris, in his 2012 predictions for Insurance Times, has said that despite an easing off in rate increases at the end of last year, the upcoming year was likely to see double-digit increases. And most motor insurers are likely to report underwriting profits for 2011, he added, which should provide names with some comfort about the sector’s performance.

Lloyd’s has had to do a lot of hard work to recover the reputational ground it lost during the early 1990s when many names were bankrupted by their exposure to asbestos claims. That particular saga only finally concluded in 2009 when the High Court approved the transfer of members’ historic liabilities to Equitas.

The names’ sway is clearly much diminished from what it was 1992. Nevertheless, members’ agents still collectively supply £3.4bn worth of capacity, according to ALM figures. Equating to roughly one-seventh of Lloyd’s total estimated capacity of £23.7bn, it is a significant sum.  

And names have maintained their share of the Lloyd’s market, as the growth in the capacity that they supply has mirrored that of Lloyd’s as a whole. Catlin recently announced that it had secured £60m worth of capacity from a group of names.

The risk for Lloyd’s is that individual investors will be put off once again, which goes some way to explain that tough stance taken against Equity.