Lloyd's clampdown could see capacity crunch

Although some business could trickle down to the company markets, overall capacity should fall as a results of the Lloyd’s clampdown on underperforming syndicates, according to industry veteran Charles Manchester.

“At the end of the day, there is a reduced capacity out there. And if there is reduced capacity, even if it can move into the company market, there is still reduced capacity in the market and that will put an upward pressure on rates”, he told Insurance Times. He adds that “if business is losing money and you’re an insurance company, why would you write it if you don’t have to?

“Now, if there’s a pressure to write for top line - which there has been in the soft market – then that’s a reason why they might not want to write it. It’s not necessarily an excuse.”

He said that with market capacity being reduced, there’s less reason to write under-priced, loss-making business.

Nevertheless, Manchester commended Lloyd’s for taking action, despite the short turnaround period of 12 months.

“It’s very sensible. However, you need to absolutely change the paradigm in terms of the types of business you’re writing, and the risk,” he said.

Nevertheless, Manchester praised Lloyd’s for taking action, despite the short turnaround period of 12 months. “It’s very sensible,” he said. “I can see why they are doing it. The difficulty is always in the implementation. The result is there are a lot of challenged classes at Lloyd’s where it is no longer able or willing to provide the capacity.” Manchester believes the reduced capacity could lead to increasing prices, reduced cover and potentially less commission for brokers.

The problem, he believes, lies with the implementation and communication, both internally with the managing agents, and the customers and brokers. “I’m sure with hindsight they’d do things differently. Things needed to be a bit better. On the other hand, it’s a difficult job to try and turn everything around in the one year.”

Asked whether some of the insurers who operate their main business outside Lloyd’s, might swoop to grab the business, Manchester questioned whether they would want it: “They can, if they want to. But it’s not that Lloyds are [clamping down] because of all the profits they’re been making. They’re doing it because these are challenges areas.”

He added that if the rates are inadequate, commissions too high and covers too wide, then moving the business would not transform a loss-making book. “They’re not chucking out good business, they’re chucking out business that has consistently been poorly performing, Manchester said.”