[Skip to content]

Sign up for our daily newsletter
The Actuary The magazine of the Institute & Faculty of Actuaries

Consolidation on the way in robust London Market, says KPMG

The accountancy firm claimed that 2011 would be remembered as an exceptional year for the insurance industry, with record losses in the catastrophe market and key players posting losses in their half-year statements.

While the firm's General Insurance Performance Benchmarking Survey emphasised the robust nature of the market it also predicted consolidation, premium increases and a renewed focus on cost management for the sector in the second half of the year.

Mark Winlow, UK head of general insurance at KPMG, commented: "The first six months of the year brought substantial catastrophe claims and a high incidence of large losses.

"In addition, soft rating conditions and an ongoing challenging investment climate have also played their part to create a challenging environment. Consequently, the half year statements from the London Market players covered in our report were dominated by these pressures, with eight out of nine insurers analysed posting financial losses for the year to date."

He added: "Despite these challenges, the news for the London insurance market is not as bad as it might initially appear. This sector of the market is resilient and insurers are confident in their ability to meet their claims. It will undoubtedly be a hard year, but the insurers have recovered from challenging periods in the past and this time around they appear to have enough capital to absorb losses."

The KPMG report analysed the 2011 half-year results for nine London Market insurers which were dominated by significant catastrophe claims, soft rating conditions and deflated investment returns.

Mr Winlow continued: "One thing that does seem likely is a focus on consolidation in the short and medium-term. This will be fuelled partly by the desire for growth, and partly by Solvency II, which is demanding a greater level of requirement around capital.

"Premiums are also destined to rise, which will act as a buffer for the market. However insurers will have to be circumspect and realistic, and these increases will not be across the board. Some territories or classes of business may see quite marked price increases.

"Property and transportation are the areas of greatest fluctuation and we've already seen Japanese rates go up by 60%. The challenge for the London Market will be how much their customers can stand; understanding the level of premium increases compared to customer demands.

"In addition to raising premiums, insurers will need to find ways to trim their costs which is leading to more looking at initiatives such as outsourcing. All in all a challenging environment for international insurers but the London Market is standing firm."

Source: Insurance Age