What are the problems and solutions re cargo cover at Lloyd’s?

In a recent blog for broker JLT, Jay Payne, Senior Partner, observed that a number of Lloyd’s syndicates had recently withdrawn their capital from the London marine cargo market. Payne asked whether this was a sign of things to come or “just momentary belly ache from years of over indulgence”.

Payne said that the recent withdrawal of these cargo syndicates only served to reduce the overall supporting capacity, but the major market leaders remained active.

Lloyd’s had instructed its managing agents to provide quarterly reports and a remediation plan to improve the underwriting performance of the seven under-performing classes, of which cargo was one, which have a cumulative gross annual premium income of $6.4bn.

The 2017 Lloyd’s marine loss ratio, of which cargo is part, reported a 122% loss ratio and cargo, as a stand-alone business, was reported to be closer to a 135% loss ratio. Payne said it was rumoured that 14 Cargo syndicates were under review by Lloyd’s.

Lloyd’s as a whole reported a 114% loss ratio for 2017, equal to a roughly $2bn market loss.

The London cargo market had been seeing further market consolidation, with AXA buying XL Catlin for $16bn and AIG buying Validus Re. This reduced the number of market leaders available, which in turn reduced choice for clients. “So with four becoming two we will, regrettably, see reduced market appetite and potentially consequent job losses”, claimed Payne.

He observed that there had been soft exits from specific product lines (tobacco and pharmaceuticals) and business from certain territories being affected by reduced appetite from market underwriters (LatAm but more specifically Brazil and Panama).

Payne said that JLT, itself now at the beginning of an agreed takeover by Marsh, did not believe this was just a momentary market correction but was instead “the market redefining itself to safeguard the long term trading future. Insurers are re-engineering parts of their portfolios so they can return to sustainable profit margins and so they can continue to offer product solutions to meet the demands of their clients.”