Surging wage inflation is an increasingly pressing concern for insurance and broking executives in the London market, with competition to hire and retain top talent threatening to dent profitability at the same time as rating increases begin to tail off.

Numerous sources from across the London market said that staff costs had rocketed over the past year, with the combination of hardening market conditions, the broking “supercycle”, start-ups looking to hire top talent and macroeconomic pressures all combining to hike staff costs.

The sums required to hire the best brokers and underwriters has been variously described to this publication as “out of control” and “crackers”, with the situation most pronounced in strained lines of business where staff movement has been exceptionally high, such as D&O and reinsurance.

Given that most companies across the market are in growth mode, management is faced with the simultaneous challenge of hiring for new roles while defending their existing staff base.

“All of us are all both poacher and gamekeeper,” one London market CEO observed.

While it is difficult to put a precise figure on the wage changes – not least because of varying compensation structures in the market – sources estimated that wage cost inflation was running at between 10%-20%.

This is skewed by the pay rewards on offer for staff moving between firms, with 50% pay rises a common occurrence for those taking on new roles or taking counteroffers, while base pay increases are generally single percentage figures for existing staff.

All of us are all both poacher and gamekeeper

(Re)insurance is not alone in experiencing an inflationary environment for staff costs, with demographic and macroeconomic factors, exacerbated by the pandemic, leading to wage inflation across a host of industries, with pronounced changes in financial services such as law and banking.

The situation in (re)insurance is exacerbated by the sector-specific drivers outlined above.

Market anecdotes abound of offers and counteroffers, lucrative joining bonuses and companies “throwing money around” to hire.

In one scenario, sources told of an underwriter offered a pay increase from £90,000 to £200,000 to move to a large broker, eventually remaining at the existing employer for a salary of around £170,000. Such stories are common.

Wage inflation has been most dramatic in the broking market, as intermediaries look to hire quickly and capitalise on highly attractive trading conditions, where rising insurance prices and GDP growth have led to a spell of bumper broker earnings dubbed the broking “supercycle”.

“When you are in a situation where you haven’t got enough people to service your clients, and you are making a lot of money, then you throw money at it,” one source observed.

Additionally, consolidation in the broker market and the hunger of challenger intermediaries such as Lockton Re, Howden and McGill and Partners has disrupted the market, with expanding operations offering lucrative pay deals to secure top brokers or teams.

Margins impact

Executives at carriers bemoaned a “dearth of talent” for the roles they are looking to fill, with insurers willing to pay a premium for those that meet expectations.

Sources estimated that the increased wage costs seen in the past year could add around 60 basis points to a combined ratio, while at brokers, wages are understood to have a more material impact on profitability, with remuneration expenses accounting for a larger portion of the cost base for intermediaries.

Across the major brokers the cost of staff has largely reduced as a proportion of revenues in 2021, although this could in part be down to the double-digit revenue growth the brokers have enjoyed over the past year.

There are, of course, pros and cons to paying out significant sums to bring in broker talent. As sister publication Inside P&C has explored, broking sources believe team lifts in particular when executed well can deliver the highest returns, particularly judged on a cash basis. (See the full analysis of the team lift model on Inside P&C here.)

Team lifts in numbers II Red.jpg

In underwriting, some business leaders stressed that the rising cost of securing key talent was largely justified on business grounds, with the potential gains from a profitable, loss-free book dwarfing the sums of a salary increase.

However, as the costing landscape begins to transition, with the possibility of flatlining or declining rates in some classes of business, sources warned of a hangover effect on profitability caused by the wage deals that have been agreed at the height of the pricing frenzy.

In particular, there is a shortage of underwriters with the ability to move business, meaning bumper deals for those that can.

Also, technical back-room staff have seen wage increases far greater than in previous hard market cycles.

Such wage increases, it was suggested, were sustainable amid hard market conditions, but retaining such upwards momentum would be untenable.

Sources speculated that 2022 would continue to see wage inflation in classes which remained distressed, but a more benign pricing environment in other lines would lead to a correspondent cooling in the hiring market, although macroeconomic factors were likely to keep up the pressure to up pay.

Analyst questioning at the brokers

Analysts are watching the situation closely at the large publicly listed brokers, with Marsh McLennan CEO Dan Glaser repeatedly quizzed on the subject after the broker reported its Q4 results last week.

The operating margin at the broker reduced by 90 bps to 20.4% in Q4, reflecting “significant investments in the business”.

The executive said that the broker, which has hired over 5,000 staff in the past year, was “very wary” about wage inflation, but confident that rising expenses were being balanced out by strong revenue growth.

Aon CFO Christa Davies said in the broker’s earnings call last week that she expected to see wage inflation into 2022, but it would be offset by other improving efficiencies at the business.

On a conference call with Brown & Brown investors, CEO Powell Brown also said his firm was “absolutely encountering wage inflation”.

The CEO said the impact of wage inflation had not shown up in a meaningful way in Q4 but added: “We are absolutely subject to the pressures of it that anybody else right now is.

“I think that I’ve read recently that we’re in a somewhere between a 30- to 40-year low in terms of labour shortage across all industries. And I’m not going to say that’s indicative exclusively of our industry, but I’m saying the industry hasn’t done a very good job of reinvesting in the teams that are there.”

Driving factors

Sources stressed that wage dynamics at play in the market were shadowing those of previous market cycles, with improved underwriting conditions inevitably adding inflationary pressure to wages.

On top of that, the amount of private equity capital entering the insurance arena and the bumper valuations placed on brokers and MGAs in M&A deals was having a trickle-down effect on staff income.

“The result is that some MGAs are throwing money around like it’s confetti,” one source said.

There is a marked difference in approach between businesses, with big brokers and some start-up underwriters most willing to offer bumper pay deals, while other established underwriting shops are said to be “playing a long game” and allowing some level of staff attrition as a result, and others counteroffering to retain talent.

Some MGAs are throwing money around like its confetti

In reinsurance, the situation is said to be “ridiculous”, especially in the broking market.

Meanwhile brokers with over 15 years’ experience in the D&O market are said to commonly expect a salary “with a two at the front”, whilst competition is incredibly tight for staff with three to five years’ experience.

Pay growth for junior staff has also been boosted, with graduates offered more attractive packages than in previous years, although sources stressed that this followed a number of years of stagnation, and that insurance pay was still well below that of finance professions like banking and the law, in part reflecting the lesser workload.

The bigger picture

The insurance sector is not unique in its experience of surging staff costs, with macroeconomic trends and the pandemic having driven up wages globally, including in financial services.

In the UK, wage levels as of October 2021 were 107.8% of those seen at the beginning of 2020, with the financial services sector outpacing average earnings growth, with wages 113% of the January 2020 figure.

The pandemic has pulled forward retirement dates for a significant proportion of employees, creating a demographic challenge, whilst economies rebounding from the hits taken during the pandemic have led to a tight labour market.

Other mainstays of the City such as banking and law have also seen staff offered better pay deals, with competition for staff corresponding with a boom period for M&A activity, huge investment bank profits and record partner payouts at law firms.

Lloyd’s CEO John Neal has said repricing “has to happen” following the substantial industry losses from Covid-19, and pledged flexibility in permitting additional growth to the market as rates rise. 

This morning, Lloyd’s released an industry underwriting loss estimate of $107bn for Covid-19. When including the expected hit to investments, this total industry impact rises to $203bn, Lloyd’s said.

The Lloyd’s market is expected to take $3bn-$4.3bn of the Covid-19 underwriting losses.

Speaking to Insurance Insider, Neal said: “You can’t put a potential $200bn loss into the non-life insurance industry and not expect the market to reprice.”

He added: “I hope we will learn from experiences of the past, whether that was 9/11 or another event, and realise that this has to be a significant pricing event.”

The Lloyd’s CEO said the Corporation would be as accommodating as it reasonably can be in permitting syndicates to grow in a hardening market.

Lloyd’s performance management directorate has been tough on growth in the past two years as it has sought to rectify market performance, a process which is still ongoing. The market has previously complained that Lloyd’s would not allow it to grow ahead of risk-adjusted rate.

“If there is growth that’s price-driven we will be very quick to support that,” Neal told this publication.

He said that Lloyd’s would do as much as it could to approve business plans quickly and simply, and “there would be forgiveness if the right opportunities are there within your plan to grow”.

The light-touch cohort of outperformers will gain automatic plan approval and therefore freedom to grow.

Neal said those which are not light touch, Lloyd’s had revamped the standard approach to business planning around some KPIs. Provided the plans are credible, and there is clear demonstration of how managing agents got to their forecasted loss picks, “we can fast track those approvals”, Neal said.

“I think the vast majority of syndicates will fall into those two buckets. If plans are sensibly constructed they will be approved,” Neal said. “But there is a third bucket, the high-touch syndicates, and if they have been a problem it will be a difficult set of discussions.”

The high-touch cohort is made up of both underperforming syndicates and those which are deemed material to the market – either due to their size or cat exposure. Lloyd’s 2020 planning documentation shows the high-touch cohort has around 20 syndicates and accounts for around 45 percent of market premium.

Lloyd’s will also be accommodating to new capital wishing to support Lloyd’s businesses as the market enters a period of opportunity, Neal said.

He pointed to the two new Lloyd’s entrants recently approved – Carbon and Ki – and said the syndicate in a box framework was generating steady levels of interest.

“Our ILS work continues, so there is no reason why that alternative capital shouldn’t come in,” he said. “There is still interest from those not yet participating in the market, who are thinking about when entry to Lloyds is the right time.

“As difficult as this pandemic is for our customers, and how devastating the broad impact has been, there is an opportunity for insurers.”

Lloyd’s is extremely well capitalised and will be able to shoulder the cost of Covid-19, Neal said, noting that the twice-yearly recapitalisation opportunities at Lloyd’s meant the market should also be able to bolster capital before the peak US wind season.

Neal also warned that the Covid-19 impact would drag out over a number of years, with the first year creating a catastrophe-type loss, then the effects of recession being felt on premium income in the following years.

“We have also got to keep a really strong eye on inflation probably for two years out,” Neal said. “I think our businesses at Lloyd’s have learned that we have got to adjust price to keep pace with the recessionary and inflationary impact that will echo through 2021 and 2022.”

The government has confirmed it will proceed with the planned extension of off-payroll rules into the private sector from April.

The confirmation came in a report from Treasury published this morning into the review of the implementation of the extension off-payroll working rules into the private sector.

However, having listened to stakeholders the government also revealed it is making a number of changes to address concerns, and support the smooth and successful implementation of the reform.

These include:

• Customers will not face penalties for errors relating to off-payroll in the first year – barring cases of deliberate non-compliance 
• HMRC has reaffirmed that information resulting from changes to the rules will not be used to open new investigations into Personal Service Companies (PSCs) for tax years before 6 April 2020, unless there is reason to suspect fraud or criminal behaviour
• The government reaffirms the rules will only apply to services carried out from 6 April 2020 onwards
• The government will legally require clients to respond to a request for information about their size from the agency or worker, and update the legislation to address concerns raised over the rules as they apply to off-shore companies.

While HMRC has already published detailed guidance on the reform and clarified the position on a range of concerns raised – for example, the client-led status disagreement process, including by making explicit the time limits within which a disagreement can be raised – the Employment Status Manual guidance has been further updated in line with other outcomes from the review. 

Although HMRC has already published a factsheet to support contractors prepare for the changes, and are continuing to step up their communications in the run-up to implementation, it will launch further products to support contractors in understanding the changes, including a self-help guide on how to spot tax avoidance schemes.

Government further committed to continue to listen to stakeholders, and monitor and evaluate the operation of the rules, while HMRC is to commission external research into the impacts of the reform six months after implementation, including on how status assessments are being made.

Commenting on today’s development, Samantha Hurley, director of operations at APSCo and co-chair of the government’s IR35 Forum, said the association’s members will welcome the extra time to adjust that the promised ‘soft landing’ offers.  

“When the review into implementation was launched last month, APSCo made it very clear that we were not seeking a complete delay to implementation, but a period of time within which recruitment businesses and end clients wouldn’t be penalised. This was communicated directly to HMRC and other stakeholders, and we are extremely pleased this recommendation has been listened to and taken on board by the government.

“HMRC has long maintained that it genuinely wants businesses to comply with the new rules and that there will be no witch hunt – and this latest move suggests this may truly be the case. The fact that it has also published additional guidance to educate the supply chain is welcomed by APSCo.

“In addition, policy changes announced today also offer much needed clarity for our members. The fact that all businesses now have a statutory obligation to confirm whether or not they are ‘small’ takes the onus off others in the supply chain, while confirmation on the timeline for disputes is also welcomed. Many of our members will be particularly relieved that the rules will no longer apply to clients based wholly overseas, with the obligation to determine tax status in these instances moving back to the contractor.

“While there is no escaping the fact that the extension of off-payroll rules is not ideal, overall, this is a significant win for the professional recruitment sector and I’d like to thank all of our members who got involved, shared their experiences and contributed to this outcome.”

Sophie Wingfield, director of policy at the Recruitment & Employment Confederation, said: “It’s a positive move that the Treasury is putting the obligation on small businesses to declare whether the IR35 rules apply to them. This is a direct response to what the REC has been calling for and should provide recruitment businesses with much needed clarity on their obligations.”

In relation to the decision by HMRC to take a ‘light touch’ approach to enforcement, Wingfield added: “Taking a ‘light touch’ approach to enforcement in the first year will create more problems than it solves. The consequences of not complying with tax law should be clear. Not doing so could create an unlevel playing field where compliant employers lose out to unethical ones. We need to see more details about how this approach will work in practice. What’s obvious from this is that the Treasury know IR35 is not quite right. Rather than tinkering around the edges of this complex legislation, we need the government to delay implementation until 2021 to make sure it’s done properly.”

While welcoming government’s promise of a soft landing in implementation of the rules, Julia Kermode, CEO of the Freelancer & Contractor Services Association (FCSA), added she is cautious that this may cause more confusion if clients and contractors are misled into thinking that the legislation has been delayed or will not be enforced.
 
“We have confirmed with HMRC that the soft landing is genuine and that penalties won’t ordinarily be applied for the first 12 months of implementing the reforms. This is good news because HMRC’s education programme was delayed due to the general election, so a number of businesses are only finding out about the reforms and their new liabilities now, just weeks before the legislation comes into effect. However, the soft landing does not mean that businesses and individuals can plan to ignore the changes because HMRC has also confirmed that penalties will be applied where there is deliberate non-compliance.

“FCSA also welcomes the clarity regarding overseas clients being out of scope, plus the amendment requiring clients to confirm whether or not they are small so that the supply chain can ascertain if the new off-payroll rules apply.
 
“It has been clear to me for some time that HMRC has been hell bent on planning to implement the off-payroll reforms this April come what may, and the publication of their review clearly shows that these reforms are coming whether we like it or not. I can’t see the budget on 11 March bringing about a U-turn, so it would seem that the House of Lords inquiry into the legislation is the last hope to affect any meaningful change.
 
“Having given evidence to the House of Lords this week, it was clear that they were listening to the various representations, and I did get the distinct impression that they were not supportive of the legislation. Time will tell as to whether or not they can make a difference but, in the meantime, I would strongly urge everyone to prepare for the reforms as penalties will still be issued for deliberate non-compliance.”

Make no mistake, the sudden news that performance management director Jon Hancock is leaving Lloyd’s will send ripples across the London market.

He’s the man who stopped the rot and set the wheels in motion for a more profitable Lloyd’s. At a time when the future for 1 Lime Street looked bleak, he demonstrated that a firm hand and a risk-based approach to regulation could start to rectify the mistakes of the past, albeit slowly.

Lloyd’s had suffered from a crisis of confidence – even John Neal acknowledged when he arrived as CEO that the marketplace had lost its mojo. Restoring positivity in the market has been a big win for the Corporation in recent times, and Hancock’s role across performance and transformation was an important driver of that renewed confidence.

It goes without saying that his exit is a major blow for Lloyd’s, at a time when momentum around performance and strategy was just starting to gain pace.

Lloyd’s is keen to publicly show that there are no hard feelings. The transition will be flexible to suit both parties, they have said. There will be no cliff edge.

Both Neal and Hancock have stressed that this separation is nothing to do with differences of professional opinion – nevertheless market tongues will still wag on whether this departure is really to do with the fact that Hancock’s more measured view of how to implement change was at odds with Neal’s ambition to spark a big bang moment for Lloyd’s.

Departing before he has done four years in the role – and in a critical year for the Lloyd’s transformation work – certainly suggests there is more behind the move than just itchy feet.

When we spoke to him, Hancock stressed a desire to return to the commercial side of insurance, to be challenged in a way that only P&L business accountability can do.

This only works to emphasise a wider challenge that Lloyd’s faces in retaining and keeping the best talent. The best staff are reluctant to work at regulators long term.

Talent retention and turnover of staff has historically been a big issue within the Corporation, even if recently improved sentiment around Lloyd’s puts it in a much better position to recruit a highly credible successor.

The next question for the Corporation is who wants to take on arguably one of the toughest jobs in the global (re)insurance market.

Few individuals impact the performance of such a wide swathe of the market. The performance management director has a remarkable level of influence on both market profitability and pricing dynamics.

For the Corporation, performance is a key pillar of the strategy and it cannot afford to falter now that gains are starting to be made – and particularly with another calendar-year underwriting loss most likely in the pipeline.

Neal has stressed that the tone of performance management will continue with the new recruit, and the standards that Hancock has set will “100 percent” continue.

For the good of the market, this statement must prove to be more than just lip service.

But at the same time, there will not be complete continuity between the new regime and the old. The new performance management director will surely want to make his or her own mark in the role and will not want to live in Hancock’s shadow.

It will be a fine line to tread, while carrying a huge weight of responsibility.

As we have said before, the talent element is crucial to Lloyd’s ability to carry out the transformational change it is targeting.

With much more still to be done, the next performance management director will be one of the most important hires, if not the most important, Lloyd’s has made in recent times.

The number of Lloyd’s underwriting entities is steadily falling. 

The closure of a sequence of syndicates – most recently Acappella, Vibe and Pioneer – has been the most prominent cause of that drop. 

But over the last two weeks, developments at Arch-Barbican and China Re-Chaucer have thrown the spotlight on mergers as a driver of the contracting number of underwriting entities. 

Canopius and AmTrust at Lloyd’s were already on this path, along with Hamilton and Pembroke following deals earlier this year. 

The previous situation, with 60 managing agents running around 100 syndicates writing only £35bn ($46bn) of business at a 40 percent expense ratio, was clearly not sustainable. 

Mergers or fold-in acquisitions make a huge amount of sense given current pressures and the potential benefits on offer. 

Most obviously – as demonstrated this week by pending redundancies at Barbican and China Re – the mergers generate cost synergies. 

Where there are two managing agencies, one can be closed down. Two marine teams writing similar subscription books do not need to be retained. Operational staff are also duplicated. 

These cutbacks – often of very expensive staff – can make a dent in the expense ratio. 

But alongside this, there are two further important Lloyd’s merger benefits. 

The first is capital synergies, with complementary books potentially unlocking substantial capital benefits for merged syndicates. 
The second is a kind of escape card on growth. By merging two syndicates, management can ease top-line pressure, creating scope for an axe to be taken to the worst performing parts of each portfolio. 

And there is still lots of remediation work needed to purge the ills of the soft market. 

Following a rocky coming into line process for a number of syndicates, it is reasonable to assume that closures and mergers will continue through 2020. 

As much as it is always sad to see individuals lose their jobs, the firms that are making roles redundant as they pass through integration processes are doing the right thing. 

Because just as there needs to be fewer underwriting entities at Lloyd’s, there also needs to be fewer underwriters. 

Headcount in the London market must fall if it is to address its cost problem. And fewer of the people who work for Lloyd’s businesses need to be located in prime EC3 real estate. 

Figures from last week’s Lloyd’s presentation show pretty limited progress on expenses, with admin expenses actually projected to rise 20 bps year on year to 12.5 percent – albeit after an expected 110 bps improvement this year. 

I think these mergers represent one answer to the fundamental question that Lloyd’s is grappling with in so much of its blueprint thinking. 

That question is: how do you maximise the benefits and minimise the challenges of being both many and one? 

There are many different ways into this question. 

But among the crucial benefits of the manifold nature of the market are the capital spread that can be offered to clients, and among the key disadvantages are the duplication of cost – and associated complexity – of having many underwriting businesses appraise then write the same risk. 

The Canopius-AmTrust deal – which saw AmTrust take a mid-teens stake in Canopius and Canopius take on direct management of the merged business – is one model for consolidating underwriting while maintaining a capital spread.

Whether through paper deals or simply in-market sales, M&A is one answer to a fragmented Lloyd’s structure which does not make sense 

But M&A is not the only way to achieve this. The Lloyd’s modernisation plans create scope for other structures which achieve this outcome without shareholder changes. 

New approaches to the way that subscription business is placed, with follow-only syndicates and turbo-charged consortia, open the door to a situation where underwriting work is concentrated in a smaller number of hands, but capital diversity is retained. 

However the market gets there, it needs to find a way to drive to an outcome where regardless of how fractured the capital is on the front end, the number of entities underwriting on the front end must consolidate down. 

After the closure of three Lloyd’s syndicates since the start of the month – Vibe 5678, Pioneer 1980, and Acappella 2014 – there are plenty of reasons to feel bearish about smaller Lloyd’s players.  

These three syndicates suffered from a toxic cocktail of access-to-business problems reflecting poor competitive positioning, soft market growth and cost issues brought to bear by Lloyd’s expenses, their lack of scale and the Corporation’s cap on growth.

As if that wasn’t enough, there are structural shifts that make the future look bleak for small players: the move towards passive following capacity and the pending changes to the Lloyd’s lead-follow structure.  

With all of this bearing down on them, it is not surprising that the three syndicates suffered from persistently weak underwriting performance, and that they were not perceived by capital providers as a good short- or long-term bet. 

Some believe we are witnessing the dying days of small syndicates.  

But despite the closure of these three players, other syndicates faced similar challenges and yet managed to secure capital for another year.

Dale Underwriting Partners kept ProAssurance on board with a reduced line, and was able to add three new trade capital backers.

Probitas secured capital backing for 20 percent pre-emption, while Apollo, Agora, Verto and DTW 1991 were finalising their Funds at Lloyd’s as of last week.

Securing capital for 2020, of course, does not mean all those structural pressures and tough market conditions vanish overnight. It is, however, a sign that the situation is more nuanced than the “big is beautiful” cheerleaders may suggest. 

Perhaps it is not impossible for small syndicates to survive. There are other syndicates out there that do good business without the advantages that scale brings, with MAP, Ark and Atrium all consistently among the best performers in Lloyd’s.  

On the flip-side, there are larger businesses for whom it has not all been plain sailing.  

MS Amlin was in September obliged to shut down nine lines of business as part of a fresh round of remediation work. The firm’s Lloyd’s syndicate has not made an underwriting profit since 2015.

Similarly, Axa XL’s flagship Syndicate 2003, which wrote $3bn in gross premium in 2018, booked a loss $302mn last year – larger than the prior year’s loss of $259.2mn – and reported a combined ratio of 115.6 percent. 

The challenges faced by these businesses show that scale isn’t everything. 

A loss ratio problem is a loss ratio problem if you wrote £250mn or £2.5bn. 

And conversely, a business with good risk selection, intelligent portfolio construction and well designed outwards protections, should be able to continue to outperform on the loss ratio. 

It may be harder than it used to be and it may continue to get harder. But it’s just possible that the best entrepreneurial businesses will continue to thrive at Lloyd’s. 

In Brief

IG offers 5% rate rise as it switches to two-year deal

The International Group has offered 5 percent increases on the key layers of its programme, as it seeks to move the entire $3bn open market placement to a two-year deal, The Insurance Insider revealed.  

The IG has also notified the market that it expects the Golden Ray claim to come in as low as $115mn, while the Maersk Honam also experienced sizeable loss development within the most recent policy period. Against the backdrop of a turning marine market, and with fears of creep on the Golden Ray, (re)insurers have given a lukewarm reception to the deal, which incepts on 20 February 2020, particularly given the attempt to lock down two years of capacity. 

Swiss Re reports ‘strong’ corporate solutions pricing momentum

Swiss Re said pricing momentum in its corporate solutions unit  remains strong, with the greatest growth in loss-affected property lines, after the division achieved 10 percent rate growth in the year to date. 

In an investor presentation the reinsurer said it has cut $60mn of operating costs from its corporate solutions unit so far this year as it restructures the division to achieve a combined ratio to 98 percent by 2021, down from 110 percent in 2018. It is focusing on “de-commoditising” the corporate solutions business it writes, while growing its exposure in large property transactions, credit and surety, and accident and health. In the presentation Swiss Re also said it expects a casualty reinsurance combined ratio of 97 percent this year, down 1 point year on year, after cutting back in US liability and US commercial motor. 

Munich Re exposed to Chile riot claims through Suramericana treaty

Munich Re is among reinsurers facing riot losses in Chile due to a property treaty it leads for one of Latin America’s largest insurers, The Insurance Insider reported. 

Suramericana is facing at least $150mn in claims from civil unrest in Chile over the past six weeks, the company has confirmed. A representative from Suramericana said the company is continuing to monitor the situation. Munich Re owns an 18.9 percent stake in Suramericana, with the rest of the equity held by Colombian financial services business Grupo Sura. 

DTW Syndicate 1991 inches closer to 2020 capital deal

DTW Syndicate 1991 is in the final stages of securing capital for the 2020 underwriting year with around a week to go until the coming-into-line deadline, The Insurance Insider reported. 

Sources told this publication the Coverys-managed syndicate had secured business plan approval from Lloyd’s with a circa 10 percent reduction in top line, and the details are now being finalised on the capital arrangements after a challenging renewal. In a statement, Coverys confirmed DTW 1991 was in the process of finalising its 2020 underwriting capacity arrangements ahead of the 29 November deadline and said it is “grateful for the support of our capital providers and are confident in delivering on the syndicate’s 2020 plan”. 

CAC Specialty launches environmental liability group

Cobbs Allen arm CAC Specialty has appointed a trio of brokers and established an environmental liability division.  

The operation will be led by Gregory Schilz who joins the business from Marsh JLT’s San Francisco office, where he was an executive vice president. Grant Nichols and Brian Lu also join from Marsh JLT and become vice presidents at the new division. Nichols is based in Miami while Lu works from New York. 

The Lloyd’s market made a £2bn ($2.8bn) pre-tax loss in 2017 as £4.5bn of major claims took their toll.

The market made its first underwriting loss in six years, as the Lloyd’s combined ratio worsened by 16.1 percentage points to 114.0 percent. Lloyd’s plunged into the red after making a £2.1bn pre-tax profit a year earlier.

Lloyd’s had an underwriting loss of £3.4bn in 2017, compared to a £468mn underwriting profit the year before.

Gross written premiums increased by 12.3 percent to £33.6bn, driven by new products such as cyber cover and expansion in the US market.

The £4.5bn major claims tally more than doubled from 2016, as hurricanes Harvey, Irma and Maria battered the 332 year old market.

Gross of reinsurance, Lime Street paid out £18.3bn in claims over the year.

Along with major cat claims, the market also had to contend with a rise in non-cat losses.

According to the Lloyd’s annual report, published today, the underlying accident year combined ratio, excluding major claims, deteriorated by 4.5 percentage points to 98.4 percent.

The rise in non-cat claims was linked to underlying claims inflation, an erosion in deductibles and pricing weakness.

Lloyd’s chairman Bruce Carnegie Brown said in a statement today: “After a number of relatively benign catastrophe years, the second half of 2017 demonstrated the precarious nature of the world in which we live.”

Carnegie Brown said the market losses were “not a surprise”.

“Last year it was clear that the benign claims environment was masking the impact of tough trading conditions and so it has proved,” he said.

Prior-year releases were £706mn in 2017, compared to £1.15bn in 2016. That improved the combined ratio by 2.9 points compared with a 5.1 point uplift from reserve releases the year earlier.

Lloyd’s made an improved investment return of £1.8bn, compared to £1.3bn in 2016.

Lloyd’s CEO Inga Beale said the market faced two challenges: modernisation and improving diversity.

Beale called on the market to “speed up the adoption of the market’s modernisation programme, which will digitise processes, reduce unsustainable expense ratios, and make Lloyd’s more attractive to do business with”.

She continued: “We need to attract the best talent from around the world if we are to continue to innovate and provide customers with the products they need in today’s fast-changing risk landscape. That is why we are working hard on closing the Corporation’s gender pay gap.”

The International Underwriting Association (IUA) is seeking regulatory leeway on a proposed threshold after which European carriers with consumer-facing operations would have to convert their UK branches to subsidiaries for Brexit.

The Prudential Regulation Authority (PRA) has since December been consulting on a proposal to supervise European Economic Area (EEA) commercial carriers as third-country branches after Brexit, instead of making them become separately capitalised subsidiaries.

The proposal will relieve most of the 80 EEA carriers operating branches in the UK from the need to convert to subsidiaries that are controlled and capitalised locally. However, it is contingent on what the IUA considers an ill-defined proviso that their operations do not involve retail insurance.

The proposal specifies a threshold of £200mn ($278.4mn) for “Financial Services Compensation Scheme-protected liabilities”, above which the branches would have to become subsidiaries. The IUA fears the relatively low limit could pull in a number of commercial carriers.

CEO Dave Matcham said: “The IUA hopes that such a limit will not be rigidly applied and that other factors offering policyholder protection will also be taken into consideration,” the organisation said in comments released to this publication.

“We would like to see greater clarity about the new factors to be considered alongside current requirements for third-country branch authorisation.”

Overall, however, the executive welcomed the PRA’s plan for dealing with Brexit.

“It suggests there will continue to be a high degree of supervisory cooperation between the UK and EU and that, provided they are not conducting material retail business in the UK, firms may apply for authorisation as a branch,” Matcham added.

In its December consultation paper, the PRA noted that it has a “greater ability to mitigate risks in subsidiaries as it has access to a wider range of supervisory tools and legal powers. Accordingly, we expect a firm above a certain threshold to subsidiarise.”

It also noted that the proposed £200mn threshold for FSCS-protected liabilities as not a “hard limit”.

Despite qualms over the retail threshold, the PRA’s blueprint in the main represented a major unilateral concession to EEA insurers and banks as the regulator marked a pathway for cooperation with peer supervisors. Its plan for the insurance sector mirrors its thinking on banks.

In December the PRA made the proposals subject to Brexit negotiations yielding no unexpected surprises and to it garnering “sufficient supervisory cooperation and assurance on resolution” from carriers’ home state regulators.

In tandem with the PRA December announcement, the UK Treasury said it would legislate to ensure that EEA carriers in the UK could continue to pay claims on existing policies after Brexit.

However, the outlook for contract fulfilment for UK insurers operating in certain EEA countries is less certain, save for those which already have plans to establish EU subsidiaries in train.

The London Market Group noted in November that £6bn ($8bn) of premium written in the London market emanates from carriers with an EU base.

About 2,400 EU nationals work in the London insurance market out of a workforce of 52,000, while EU carriers have 6 million policyholders in the UK.

The PRA began accepting applications for branch authorisations at the start of the year. It expects about 200 applications between now and March 2019, up from an average of 12 a year.

Its consultation on the branches proposal ends on 27 February.

Lloyd’s has estimated that male employees across the Corporation are paid 27.7 percent more on average than female staff.

The Corporation published its gender pay gap figures today, as all UK companies with more than 250 staff are required to do by 4 April.

On a median basis, Lloyd’s gender pay gap is 32.1 percent.

The gender pay gap is the difference between the gross hourly earnings for all men and the gross hourly earnings for all women.

There is a higher proportion of men than women in senior roles across the Corporation, Lloyd’s said in commentary on the figures.

Although Lloyd’s has a 50:50 gender balance on the executive committee, there is almost double the number of men than women in the highest-paid quartile of the Corporation, at 66.2 percent compared to 33.8 percent.

In the lowest-paid quartile this is reversed, with over twice the number of women than men, at 66.2 percent compared to 33.8 percent.

There is also a higher proportion of part-time female employees, which can result in slower career progression and impact remuneration, Lloyd’s said. About 11 percent of Lloyd’s employees are part-time. Of these, 92 percent are women.

Lloyd’s CEO Inga Beale said: “We know that access to senior roles has historically been limited by the culture of the insurance sector that was much less inclusive and welcoming than it is now.

“While there has been good progress, particularly over the past 30 years, progress is simply not happening fast enough. We must turn this situation around, not just to benefit women, but to benefit the whole sector.”

For bonuses, men working at the Corporation are paid 36.7 percent more than women on a mean basis, and 40.7 percent on a median basis.

However, the percentage of female employees receiving a bonus is slightly higher than for men, at 87.3 percent compared to 84.7 percent.

“Our mean bonus gap of 36.7 percent is based on actual bonuses paid, and is impacted by the fact that the calculation does not take into account pro-rated bonuses which reflect the reduced hours worked,” Lloyd’s said.

The gender pay gap is different to equal pay, which is men and women being paid the same for the same work or work of equal value and is a legal requirement.

Lloyd’s said it did not believe it had an equal pay issue. However, it said this was reviewed annually.

“Lloyd’s is committed to closing the gender pay gap by working to increase the number of women taking up senior roles across the Corporation, and improve the gender and broader diversity balance across all levels,” it said.

The Corporation said redressing the gender imbalance would require a long-term approach, and said it had set a diversity target of having at least 40 percent women in the top 25 percent-ranking employees in the next five years.

It outlined four 2018 objectives to reduce the gender pay gap over time. These included mandating a 50:50 gender split for all external recruitment long lists, reviewing current succession plans and the execution of a bespoke female development programme.

Lloyd’s will also conduct a full review of family care policies and continue to improve flexible working for all employees.

The Corporation also said it had a number of ongoing initiatives to improve gender equality, including inclusive hiring and unconscious bias training, enhanced progression opportunities for all employees and a gender equality employee network.

In comments published today in the Financial Times, Beale called for a rethink of the reporting requirements for partnerships, such as law firms. Since partners are not deemed to be employees, they do not feature in gender pay data. Beale suggested the omission masked the extent of the gender pay gap at certain firms.