Steering towards growth
Dominick Hoare, group CUO and active underwriter, Munich Re Syndicate
The insurance market supertanker is slowly changing course, but more innovation and less duplication is needed to keep Lloyd’s relevant, argues Munich Re Syndicate’s Dominick Hoare
What are the busiest quarters for you in terms of renewals and what has been your experience for the year to date?
1 April is a big renewal date for us – probably no bigger or smaller than 1 January or 1 July – but it’s certainly busy right now. And even year on year it’s busier because of the distress in the market and the fact that, in some of our lines of business where we are, in essence, part of a shrinking band of underwriters we are seeing much more opportunity. Discussions with brokers aren’t perhaps as simple as they were 12 months ago because the brokers are up against it and we want to make sure we deliver a proper service and really assess the risk correctly, even if we have to say no. Everything is taking longer and, now following 1 January, people appreciate that so there’s a more determined effort to start negotiations sooner rather than later.
At the end of last year specialty underwriters were reporting some modest rate increases across the board. Has that continued?
Broadly speaking, the lines of business we’re involved in are seeing rate increases. Some are low single digit, some are as high as 30-40 percent, depending on the line of business and the particular issue we had in front of us. If we’d had this conversation three months ago the numbers I would have been talking about then are higher now – not dramatically, but the direction of travel is that rate increases are moving up.
In the lines of business we’re involved with, to take some examples, we have a very big marine portfolio, largely cargo and yacht, and in both sectors we’re seeing some very big rate increases that are gaining momentum. Now the big question is, are they enough? One has to be very careful not to get swept up in the euphoria of a hardening market – selection is still very important, but the direction of travel is good.
Upstream energy has been a great performer for Lloyd’s and it’s the second year running that it’s had a combined ratio in the 80s. And we’re still achieving small rate increases, which is quite interesting. One has to be careful, however – a lot of the strong performance in energy is back year releases. It would be interesting to look at the accident year ratios – I don’t think they will be quite as stellar.
If you take it in the aggregate, as a syndicate we’re seeing about a 3 percent rate rise to date. We had an aggregate rate rise last year too, of nearly 3 percent. So you can certainly see the insurance supertanker quietly turning.
If you want to find some good news in the Lloyd’s results, it’s that the attritional loss ratio is quietly improving. It’s the early signs that the efforts of the market and Lloyd’s under Jon Hancock’s performance gap measures are beginning to bite, which is great.
What about new business generally – are submissions up across the board?
Looking at the marine lines, where there’s more distress, and taking our cargo book as an example, we’re seeing in excess of twice the number of submissions we saw 12 months ago. What we’re seeing is that business that we never really entertained seriously before, like stock-throughput, is now flooding back in. There’s a very good reason why it’s coming back to us, which is that the incumbent market is not there. But while we’re doubling up on submissions, we’re certainly not writing twice the volume of business. There’s a lot of stuff there that doesn’t fit our risk appetite and we’re declining, but at least we’re seeing opportunity.
What’s your approach to business development for 2019/2020 – are you keeping a fairly steady course or would you like to expand any areas of the book?
We would like to grow our business – that’s very much our long-term strategy. From a Lloyd’s perspective, that’s plateaued somewhat this year because of the restrictions.
But I think what we need to do – both as Munich Re Syndicate and the market – is to really focus on strongly-performing lines of business and to push for growth there.
Also, with some of the rate increases we’ve seen, once the full analysis has been done, we might see that remediation has actually now pushed a loss-making account into profit, so let’s push for growth.
What is the next challenge for Lloyd’s that needs to be tackled?
Lloyd’s is absolutely right to start focusing on the basics – we needed to improve our performance. Now, having got that in motion and showing early signs of success, we now need to move to the next phase and the vision that was outlined by John Neal – in terms of a new Lloyd’s covering both standard risks and complex risks, with core leadership syndicates and then a tracking market behind it, with greater digital efficiencies. Lloyd’s essentially needs to be bigger, but with fewer syndicates. And if you’re going to have fewer but bigger syndicates you need to have a broader risk appetite and to look at different ways of writing the business that are cost effective. We can’t all be leaders!
How would you characterise the binders market currently?
I’m a great supporter of MGAs. They have a very important part in our insurance ecosystem. However, over recent years we have seen a lot of MGAs evolve that aren’t necessarily unique.
We’ve seen those MGAs underperform from an underwriting point of view, present us as underwriters with a very high acquisition cost base and now they’re falling down. So we are seeing a shakeup of the MGA market, which is important.
You see MGAs supported by Lloyd’s syndicates, based in Lime Street, writing exactly the same business as the Lloyd’s syndicates. So why am I spending another 10 points on acquisition costs just to do that? But if it’s a specialist MGA writing small oil and gas business in Houston that we can’t access then great, bring it on.