Contents. Executive Summary 1 Introduction 2 Basis of the Survey 4 Results Analysis 8 Results Tables 14 Conclusion 16

Transcription

1 LONDON company MARKET STATISTICS REPORT OCTOBER 2013

2 Contents Executive Summary 1 Introduction 2 Basis of the Survey 4 Results Analysis 8 Results Tables 14 Conclusion 16

3 Executive Summary Gross written premiums for the London company market in 2012 were bn, an increase of 3.5% on the 2011 total of bn. In addition a further 6.232bn of premium income has been identified as written in alternative locations, but controlled and managed by London operations. The overall intellectual and economic premium total for the London company market in 2012 therefore was bn (up 8.6% on the 2011 total figure of bn reported last year). Overall income for the London company market in 2012 was bn Lloyd s of London has reported gross written premiums for 2012 of 25.5bn, which when combined with the company market figure gives a total income for the London Market of bn. The significant amount of controlled business, being direct or facultative premiums, is considered to originate almost entirely from outside the UK, with Europe and Asia contributing the most significant proportions. London Company Market Statistics Report 1

4 Introduction The London Company Market Statistics Report has quickly matured into a well regarded and keenly anticipated annual research project. Now in its third year this publication plays an important role in reaffirming the significance of our sector within the UK economy and global financial services industry. This year s survey shows that London s insurance and reinsurance companies generate an annual income of bn. Clearly a market of such size must be one of considerable influence. The IUA represents the vast majority of firms that responded to our survey and operates more than 40 committees and groups serving their interests in a full range of activities covering underwriting, claims, regulation, compliance, tax, business processing, technology, education and marketing. In addition the association is represented on a further 20 crossmarket committees. More than 700 practitioners from across our member companies are regularly involved in the work of these groups and such a high level of engagement further strengthens the IUA s representative capabilities. Our strengthened voice has been put to good use contributing to debates on regulatory reform in many parts of the world, for example, on the development of the UK s own new system of financial supervision, on plans for a global system of group regulation and on the many different tax issues affecting companies writing business internationally from London. Of paramount importance, of course, is the need to protect the stability of the economy and financial markets, but we have been able to successfully draw attention to the need for regulators to have regard for the specialist nature of the London Market. This has directly resulted in improved trading conditions in a number of areas, not least for members accepting US business. At the very least it has also helped mitigate the worst effects of more restrictive supervisory measures. The results of the 2013 London Company Market Statistics Report emphasise, once again, the pivotal role played by the IUA s members in the international insurance industry. London is a specialty market in which an unrivalled concentration of capital and expertise can be found. These capabilities enable cover to be provided for large unconventional risks that simply cannot be adequately protected in other markets. For a long time, however, accurately analysing the profile of our market was problematic. The IUA has long produced underwriting statistics for business processed using the central Xchanging Ins-sure Services bureau. But while these services are used by a significant number of companies, many London Market insurers process part or even all of their business via alternative means or on a peer-to-peer basis. Compiling comprehensive premium income figures is complicated by the fact that many companies operate in the London Market as branch offices of large multinational organisations, writing business against their parent company s capital. Such branch offices report their revenue to a home state regulator, rather than UK supervisors and may not separately identify London Market business in their published accounts. The completion of our statistical survey, therefore, represents a considerable body of work that we are always keen to improve and expand. I am grateful for the support we have received from all non-lloyd s insurers in completing their submissions and to the members of our Statistics Committee for helping to draw up an effective template for data collection. This year we enhanced that template with a new request to provide an overall percentage split between direct and facultative business. For 2013, work on the survey also began slightly earlier in the year, allowing companies more time to provide accurate responses. In addition to the London Company Market Statistics project this year we also 2 The International Underwriting Association

5 sought to obtain data on marine premium written in London and across the UK. These statistics were used to inform the IUA s submission to a global statistics project managed by the International Union of Marine Insurers (IUMI), of which the IUA is a member. The end result is, I believe, the most comprehensive and insightful statistical analysis of the London Market that the IUA has so far produced. This publication is itself part of an expanding suite of research projects that the IUA is producing for its members. I am sure it will be of interest and prove useful to firms in benchmarking their own operations within the London Market. The results of the 2013 survey emphasise the pivotal role played by IUA members in the international insurance industry Dave Matcham Chief Executive London Company Market Statistics Report 3

6 Basis of the Survey A total of 62 companies were surveyed for the 2013 London Company Market Statistics Report. New versions of the IUA s data template were issued in February and completed forms collected over subsequent months. As in past years there was an enthusiastic response to the project resulting in a comprehensive set of returns, both from IUA member companies and a small minority of firms operating in the London company market but not yet members of the association. The total number of survey respondents represents a slight increase on last year s report. This is due both to some new entrants to the market and new returns from one or two companies that have not previously been surveyed. In addition we have also more clearly identified, as separate companies, some corporate entities that were previously included within the returns of related organisations. The definition for London market business adopted in past surveys was again considered adequate and its continued use thought to confer a welcome degree of consistency on the results. It reads as follows: London market slip business written through brokers or direct with clients and any other risks which could be categorised as large commercial/ wholesale risks. For example, global programme business or delegated authority business through coverholders or managing general agents. Any definition of what exactly constitutes London market business is, of course, open to debate. The market is notable for the complexity and diversity of its various business models and different views may be taken by different companies. Prudential Regulatory Authority, others are branches of parents regulated elsewhere in the EU. As a result statutory returns do not necessarily distinguish London market business as a separate part of their global premium income. The situation may become even more complicated when underwriters from London work with overseas colleagues on a specific risk. It is relatively common for risks to be seen in London and subject to intellectual input for underwriting purposes, but the actual line to be written in a parent office overseas. Whether or not such business is subsequently recorded as London Market may merely be an administrative choice. Given such challenges we know that completing the data template according to the definition we provide is not a simple task for some member companies and they have instead provided returns based on their regulatory filings. A total of 62 companies were surveyed for the 2013 report Certainly the majority of companies in London are now part of larger multinational groups with additional operations across the globe. But while some are subsidiaries of non-eu parent companies regulated by the Financial Conduct Authority and 4 The International Underwriting Association

7 The following guidance notes were provided to companies for assistance in completing the data submission breakdowns by class of business and geographical territory. Class of business breakdown Please allocate your premium to the class of business category that you feel it is best described by: Property Includes construction and engineering Liability Includes employers and public liability, medical malpractice Professional lines Includes directors and officers (D&O), professional indemnity (PI), errors and omissions (E&O) Marine All marine business including hull, cargo, energy, liability, specie and war risks. Aviation All aviation business including hull, public liability, passenger liability, aerospace Motor Includes fleet and large single risks Other If none of the six named classes above match in any way then please allocate premium to the other category. Includes, for example, accident and health, contingency, surety Geographical breakdown Please allocate your premium to the geographical region that you feel it is best described by. When making this allocation please use the appropriate identifier in accordance with your normal procedures, for example, address of the insured, location of the risk itself, location of the cedent and, for global programme business, location of the client s headquarters. London Company Market Statistics Report 5

8 In addition we have also been grateful for companies breaking down their overall figures to match as appropriately as possible the class of business and geographical territory categories that we specified. These were drawn up to match the most common generic definitions used across the market and to stand comparison with breakdowns published by the Lloyd s market, but they cannot of course suit the accounting practices of every single company. Further analysis of the total premium income is provided by a split between direct/facultative business and treaty business. For the first time this year we also requested an overall breakdown of the division between direct and facultative business, but not a full breakdown by class of business or territory. Our definition of London Market business omits premium that is written by overseas agents or branches that are controlled by London operations. Yet we know that some of the IUA s members have comprehensive branch networks governed by London offices and premiums generated in this manner can legitimately be quantified as representing London Market income. Indeed the inclusion of such business affords our company market statistics much greater comparability with figures published by Lloyd s. Returns were requested in the reporting currency used by the company. We subsequently converted results into pounds sterling using agreed exchange rates, as at , of $1.5 = 1 and C1.2 = 1. Comparison figures quoted in this report for the Lloyd s market were taken from the Lloyd s Annual Report For the first time we requested a breakdown of the division between direct and facultative business Thus we have published a headline number for such business controlled by London, but written elsewhere. This additional premium does not contain the same detailed breakdowns by placement type, geography and class of business shown for business written in London. We have, however, estimated its territorial split and further discussion of these results can be found in the conclusion of this report. Companies were asked to complete the data template for premium both net and gross of commission. In addition to figures for 2012 we also asked firms to restate their numbers for The International Underwriting Association

9 Graphical breakdowns by placement type, class of business and territory refer only to business written in London, excluding business controlled by London operations but written elsewhere Gross premium volume by class of business and placement type 5 4 Premium ( bn) Property Liability Prof lines Marine Aviation Motor Other Direct/ Facultative Treaty % of total Property 77% 23% 25% Liability 82% 18% 18% Prof Lines 90% 10% 13% Marine 77% 23% 16% Aviation 77% 23% 7% Motor 78% 22% 11% Other 90% 10% 9% All Classes 81% 19% 100% 2012 Gross premium volume by class of business and placement type 5 4 Premium ( bn) Property Liability Prof lines Marine Aviation Motor Other Direct/ Facultative Treaty % of total Property 77% 23% 26% Liability 82% 18% 17% Prof Lines 89% 11% 12% Marine 73% 27% 17% Aviation 73% 27% 7% Motor 72% 28% 12% Other 88% 22% 9% All Classes 79% 21% 100% London Company Market Statistics Report 7

10 Results Analysis Gross premium income written in the London company market in 2012 was bn. (Net written premium bn). The restated figures for 2011 are bn GWP and bn NWP. This represents an increase of 3.5% in gross written premiums over the year. In addition, for 2012, a further 6.232bn of premium has been identified as controlled by London operations, but written elsewhere. This additional premium is not broken by placement type, geography and class of business and not therefore considered in this Results Analysis. If breakdowns of controlled business were available then the totals in various business categories related throughout this section would of course be higher and IUA totals would also be more comparable with Lloyd s market figures. An estimation of the geographical breakdown of controlled business has been made in the Conclusion of this report in order to better reflect the international spread of London company market premiums. Combining the total for gross premium income written in the London company market with business controlled by London operations gives an overall intellectual and economic total in 2012 of bn. This represents a growth of 8.6% on the total figure of bn reported last year for This compares with the Lloyd s market s gross written premium total for 2012 of 25.5bn, also an increase of 8.6% on their 2011 figure of m. Combining the overall company market and Lloyd s totals gives a premium income for the whole London Market of bn in 2012 (US$74.6bn). This year s London company market statistics survey was conducted slightly earlier than in previous years. It is possible that this has depressed premium totals in some cases where companies accounting processes are based on policy inception dates. In addition some companies have not restated their figures for We have assumed therefore 8 The International Underwriting Association

11 Gross written premiums grew by 8.6% between 2011 and 2012 that their premium income for that year remains unchanged, though again it is possible that this omission may have slightly depressed the totals. Analysis by Placement Type The 2012 figures again show the London company market to be dominated by direct and facultative business which accounted for 79% of gross written premiums in London ( bn). This share was, however, slightly lower than the 81% ( bn) recorded in the restated 2011 returns. Treaty contracts made up 21% ( 3.815bn) of gross business in 2012 and 19% ( 3.328bn) in This year s survey, for the first time, requested companies to provide a basic breakdown of how their income is divided between direct and facultative business. The results showed direct business to represent the majority share at 60.2% with facultative at 39.8% in The restated 2011 returns had a similar, though slightly less pronounced split with direct business on 57.8% and facultative on 42.2%. Analysis by Class of Business The IUA template for statistical returns divides premiums into six major classes of business. Motor was introduced as a new class in last year s report and has been retained this year. In addition a seventh category labelled other is included to cater for any business which members cannot conveniently allocate to any of the main classifications. Results for 2012 showed little change in the spread of business between the different classes. Property was again the largest single class representing 26% of gross written premiums ( 4.608bn) in 2012 compared to 25% ( 4.410bn) in the restated 2011 figures. The next most significant class of business was liability with a 17% ( 3.132bn) share of total income in 2012 and 18% ( 3.172bn) in Professional lines business meanwhile recorded a contribution of 12% ( 2.207bn) in 2012 and 13% (2.289bn) in Income from both marine and motor business increased noticeably with the former recording a gross premium income of 3.005bn in 2012 compared to 2.818bn in This 6.6% meant the marine sector s share of total market income rose by one percentage point to 17%. Motor underwriters produced a gross premium income of 2.158bn in 2012, up from 1.839bn in 2011, a significant increase of over 17%. This result also boosted motor s share of total market income by a percentage point from 11% to 12%. The aviation sector returned a gross premium income of 1.195bn in 2012 accounting for 7% of the total market. Restated 2011 figures showed the same market share with an income of 1.293bn. Business classified as other represented 9% of the market total in both 2012 ( 1.687bn) and 2011 ( 1.564bn). Geographical Analysis The territorial breakdown of premium income written in London does not differ significantly from that described in last year s report. There are, however, one or two subtle changes that may point towards some interesting trends for the market. The UK and Ireland is once again the dominant source of income producing bn of gross written premium in 2012, 57% of the overall total. In the restated 2011 figures its share was 9.639bn (55%). Yet for both the USA/Canada and Europe (excluding UK/Ireland) there was a fall in gross written premiums. For Europe this drop from 2.445bn in 2011 to 2.405bn in 2012 reduced the region s share of total London company market income by London Company Market Statistics Report 9

12 Premium growth was seen in regions which contain some important emerging markets one percentage point to 13%. It is likely that more business is being written locally and is not part of this geographical breakdown, but instead included in the 6.232bn of premium declared as controlled by London operations but written elsewhere. Business originating from the USA/Canada was 2.495bn in 2012, a slight fall from the figure of 2.534bn in the restated 2011 figures. This trend contrasts with that observed in other regions which may be considered to contain some important emerging markets. The total for Asia has risen by 2% from 1.352bn in 2011 to 1.380bn in Growth was also seen in the returns for Latin America which increased by 6.7% from 0.776bn in 2011 to 0.828bn in Australasia s total of gross written premiums in 2012 was 0.342bn, up by 8.2% from 0.316bn and the figure for Africa rose 4.6% from 0.324bn to 0.339bn. Comparison with Lloyd s Market The results from the IUA s breakdown of premium income by class of business can be compared with similar figures for the Lloyd s market to provide a more insightful profile of the London Market. The figures for gross written premiums are not completely comparable since Lloyd s, in its annual report, identifies direct business only, separating out all reinsurance into a separate category. The IUA class of business breakdown however is for direct and facultative business together, separating out only treaty reinsurance as a separate category. Consequently the company market totals may be considered comparatively elevated by the inclusion of facultative business. At the same time, however, the same company market totals will be somewhat depressed in comparison to Lloyd s because the IUA breakdowns only cover premium written in London and not business controlled by London operations but written elsewhere. It is, however, clear that more property business is written in Lloyd s with a 2012 premium total of 5.476bn compared to the company market s 3.537bn. For casualty business the position is different with the Lloyd s market reporting a total of 4.543bn in A comparable figure from the IUA s report is also 4.543bn calculated by combining totals for both liability and professional lines business. In the marine sector Lloyd s writes a large amount of energy business. This added to other marine lines produces a 2012 premium income of 3.817bn. The company market s gross written premium for marine business is 2.186bn. For aviation business, the Lloyd s market reported direct gross written premiums of 669m in 2012 plus a further 487m of income on a facultative and treaty reinsurance basis. This is an overall total of 1.156bn which compares with the company market s 2012 figure of 1.179bn for direct, facultative and treaty business. Finally the IUA s survey of the motor sector records a gross premium income total of 1.551bn for direct and facultative business in 2012 against Lloyd s figure of 1.155bn for direct business. 10 The International Underwriting Association

13 2011/2012 Gross premium breakdown by placement type Premium ( bn) /2012 Gross premium breakdown by class of business 5 4 Premium ( bn) Property Liability Prof lines Marine Aviation Motor Other London Company Market Statistics Report 11

14 2011 Gross premium volume by class of business and territory Premium ( bn) ty Property Liability Prof lines ne Marine on Aviation 2012 Gross premium volume by class of business and territory 4.5 or Motor er Other UK/ Ireland Europe (Excl UK/ Ireland) USA/ Canada Latin/ South America Asia Africa Australasia Premium ( bn) ty Property Liability Prof lines ne Marine on Aviation or Motor er Other 12 The International Underwriting Association

15 2011/2012 Gross premium breakdown by territory % 2% 2% 2% Australasia 8% 5% 8% 5% Africa Asia 15% 55% 14% 57% Latin/South America USA/Canada Europe (Excl UK/Ireland) 14% 13% UK/Ireland Company Market vs Lloyd s 2012 IUA Liability + Professional Lines Lloyd s Casualty IUA Marine Lloyd s Marine + Energy IUA Direct/ Fac bn Lloyd's Direct bn Property Aviation 1.179* 1.156* Motor * includes direct, facultative and treaty business All Lloyd s figures except aviation exclude reinsurance business All IUA figures exclude company market business controlled by London but written elsewhere London Company Market Statistics Report 13

16 Premium controlled by London but written elsewhere amounted to 6.232bn in 2012 Gross Written Premiums in the London 2011 Property Liability UK/ Ireland USA/ Canada Latin/ South America Europe (Excl UK/ Ireland) Asia Africa Australasia Total 2,192,155,616 2,041,589,397 50% 64% 839,238, ,508,110 19% 16% 265,222,030 74,586,356 6% 2% 629,176, ,596,196 14% 12% 262,829, ,881,578 6% 4% 116,303,918 17,991,066 3% 1% 104,972,520 42,299,035 2% 1% 4,409,899,083 3,172,451,736 25% 18% 2011/2012 Gross premium written in London and elsewhere, but controlled by London Premium ( bn) London 2012 Elsewhere 2012 Property Liability UK/ Ireland USA/ Canada Latin/ South America Europe (Excl UK/ Ireland) Asia Africa Australasia Total 2,423,270,026 2,008,381,283 53% 64% 818,090, ,260,262 18% 14% 284,602,058 72,163,334 6% 2% 569,582, ,841,383 12% 12% 276,621, ,464,228 6% 5% 112,469,813 20,375,222 2% 1% 123,124,580 61,657,485 3% 2% 4,607,761,389 3,132,143,197 26% 17% 14 The International Underwriting Association

17 Company Market Prof Lines Marine Aviation Motor Other Total 1,508,333, ,618, ,966,258 1,579,331,359 1,045,773,632 9,639,768,501 66% 32% 29% 86% 67% 55% 167,363, ,478, ,863, ,976, ,332,265 2,533,760,044 7% 19% 11% 7% 14% 15% 50,147, ,425,021 86,876,332 8,407,719 38,840, ,505,147 2% 9% 7% 0% 2% 4% 232,151, ,125, ,122, ,780, ,621,488 2,444,573,909 10% 21% 29% 6% 8% 14% 236,959, ,171, ,727,709 8,877, ,088,150 1,351,535,310 10% 14% 18% 0% 6% 8% 18,513,563 94,961,573 50,581,014 4,195,673 22,162, ,709,486 1% 3% 4% 0% 1% 2% 76,103,850 48,267,121 24,109,308 3,966,052 16,497, ,215,759 3% 2% 2% 0% 1% 2% 2,289,572,907 2,818,047,956 1,293,245,785 1,838,534,468 1,564,316,221 17,386,068,156 13% 16% 7% 11% 9% 100% Prof Lines Marine Aviation Motor Other Total 1,444,598,013 1,003,082, ,554,378 1,838,909,682 1,110,081,204 10,202,876,832 65% 33% 31% 85% 66% 57% 189,719, ,709, ,792,657 40,467, ,458,131 2,495,498,480 9% 21% 12% 2% 13% 14% 35,910, ,441,305 80,400,703 11,839,654 55,484, ,842,711 2% 10% 7% 1% 3% 5% 268,797, ,127, ,230, ,282, ,204,762 2,405,067,073 12% 17% 25% 11% 8% 13% 214,440, ,742, ,061,155 19,759,595 99,740,063 1,379,830,065 10% 13% 19% 1% 6% 8% 21,208, ,909,933 47,883,761 6,168,740 26,341, ,357,093 1% 3% 4% 0% 2% 2% 32,686,455 51,792,469 20,468,089 8,669,145 43,791, ,189,661 1% 2% 2% 0% 3% 2% 2,207,361,637 3,004,805,041 1,195,391,097 2,158,097,708 1,687,101,847 17,992,661,915 12% 17% 7% 12% 9% 100% London Company Market Statistics Report 15

18 Conclusion Perhaps the most striking feature to emerge for this year s company market survey is the amount of business declared as controlled by London operations but written elsewhere. The total for premium income falling into this category in 2012 is 6.232bn. This is a remarkable 23% higher than the 2011 figure of 5.052bn recorded in last year s report and now represents one quarter of the total market income. Such growth is clear evidence of premium being written in local offices as markets expand and evolve, but that the business still has London oversight Gross premium breakdown by territory including business controlled by London but written elsewhere 3.4% 8.3% 10.3% 1.4% 2.7% 29.2% 44.7% Australasia Africa Asia Latin/South America USA/Canada Europe (Excl UK/Ireland) UK/Ireland 2012 GWP bn % UK/ Ireland Europe (Excl UK/ Ireland) USA/ Canada Latin/ South America Asia Africa Australasia Total In addition a proportion of this large increase can also be attributed to more effective data gathering by the IUA. This is the third year the association has published a comprehensive statistical study of the London company market and the second year that we have included a measure of controlled business. The exercise is now well established and we are able to enjoy the support of an excellent range of contacts for assistance in completing data templates for individual companies. Across the market there is now a clear understanding of how the submission form can be returned in the most consistent and complete manner. This year, therefore, we have been able to identify a much clearer picture of the amount of business controlled by London but written elsewhere than ever before. This result highlights dramatically how important London operations are in the management of global branch business. From our knowledge of company organisations we believe that much of this 6.232bn of controlled premium is made up almost entirely of non-uk branch business. A significant proportion is certainly from elsewhere in the EU as many IUA members have continental branches. Since most American risks will be written as surplus lines business in London and are identified in the London Market writings, 16 The International Underwriting Association

19 however, if controlled business were included in this territorial analysis the size of the UK share would be much reduced. we assume the controlled figure excludes US premium. Much of the remaining controlled business therefore is considered to be from Asia and emerging economies where companies are keen to grow. The City is well known as an international insurance centre, with cover regularly sought from its concentration of underwriting expertise for specialist risks originating all over the world. Clearly that expertise is being heavily utilised, but not just for accepting unusual or difficult business at various locations dotted around the EC3 postcode. It is also overseeing extensive networks of underwriting offices in local markets as they accept more standard and traditional risks. IUA members have recognised that future business growth is likely to be sourced not just from Europe, but also Asia, South America and other rapidly developing regions. This year s report indicates that accepting risks via international branches, but controlling the operation from a London office, is proving a popular business model. Thus, while the graph on page 13 shows UK business as the largest category with 57% of business written in London, it is important to bear in mind that this is only part of the picture. We do not have an exact geographical breakdown for business written elsewhere, but controlled from London. Certainly, To illustrate this point further we have, in the graph opposite, estimated a rough geographical breakdown for the 6.232bn of controlled business and combined it with the known territory splits for the bn of premium written in London. The assumed breakdown for the controlled business total is 75% from Europe (excluding the UK and Ireland), 10% from Asia, 10% from the UK and Ireland and 5% from Australasia. This analysis produces a more accurate overall picture of London company market income that is more international and much less dominated by UK and Ireland premiums. The share of business accounted for by the UK and Ireland drops from 57% when controlled business is excluded to 44.7% when controlled business is included. Overall gross written premiums have increased year on year by 8.6% in both the London company market and the Lloyd s market. It is unremarkable that both markets have recorded similar growth rates since there is a great deal of risk-sharing between the two. The IUA s regular monitoring of premiums processed by the central services provider, Xchanging Ins-sure, indicates that over half of all risks are shared by both Lloyd s and companies on a subscription basis. Again part of the growth in the company figures may be explained by improved data gathering, but the market is undoubtedly experiencing welcome levels of expansion. Identifying reasons for such growth is difficult and will vary considerably between different classes of business. New products, more clients and rising prices may all play a part. Future company market surveys may attempt to gather some evidence on the drivers behind premium income trends, though at a market level this can only ever really be anecdotal at the moment. London Company Market Statistics Report 17

20 International Underwriting Association Ltd London Underwriting Centre 3 Minster Court, Mincing Lane, London EC3R 7DD tel +44 (0) fax +44 (0) info@iua.co.uk web