How Lloyd’s insurers will react to capacity reductions in Canada

“Constant churn” helps restore some capacity withdrawn by syndicates, though not always at the same terms and conditions, Lloyd’s Canada’s new president suggests.

“When capacity is scarce in one or more syndicates, other syndicates likely view this as an opportunity,” said Lloyd’s Canada president Marc Lipman in an interview.

In 2018, the Corporation of Lloyd’s told syndicates to thoroughly review the worst-performing 10% of their portfolios. (The Corporation of Lloyd’s is not an insurance company or broker. Instead, it oversees a market composed of some 50 managing agents, 76 syndicates and over 4,000 coverholders). Syndicates then had to submit remediation plans for all lines that were losing money.

Also in 2018, the London market saw more than 70 different announcements of exit or significant reductions in various lines, Axis Capital CEO Albert Benchimol said in one of his firm’s earnings calls.

“Over this hard market, Lloyd’s has really limited their capacity,” said Cameron Copeland, president of Vancouver-based managing general agent Cansure, on May 6. He made that comment during The Rise of MGAs, a panel discussion at Virtual Symposium B.C., organized by the Insurance Institute of British Columbia. During that event, Copeland predicted the Lloyd’s market would later increase its capacity in Canada.

“Capacity kind of floods back in when opportunities are presented and there is this constant churn,” Lipman told Canadian Underwriter in a separate interview.

Lipman was asked whether there are any insurance lines in Canada in which Lloyd’s is reducing capacity or imposing stricter underwriting standards.

“Syndicates that offer new capacity probably do not offer the new capacity at the same exact terms and conditions, or the same pricing model, as the capacity that was withdrawn. But there will always be syndicates and managing agents at Lloyd’s that will look to take advantage of underserved risk appetite, and that certainly applies to Canada,” said Lipman, who was appointed president of Lloyd’s Canada earlier this year.

Lipman is a former chief operating officer of American International Group Canada. As Lloyd’s Canada president, Lipman replaced Lisa Duval, who had served as Lloyd’s Canada’s attorney in fact and chief agent on an interim basis since October 2019. Duval, who replaced Sean Murphy in 2019, has returned to Lloyd’s International Regulatory Affairs in London, the Corporation of Lloyd’s said in May.

Canada is the Lloyd’s market’s third-largest market globally, after the United States and the Britain, said Lipman.

“In 2020 — in a challenging year by all accounts — Lloyd’s increased its gross written premiums by 13% in Canada,” he said, attributing that to both rate increases and increases in business.

“There is no doubt Lloyd’s also benefited from the hard market, when capacity had to be reduced and some business was shed from the books. Overall, premium increases offset some of that reduced business, which was partly the case in Canada,” Lipman said.

When it comes to capacity in the Lloyd’s market, there are always a couple of lines that stand out.

“I think now about cyber and the increase in the incidence of ransomware. Certain segments of financial lines, such as directors’ and officers’ liability and errors and omissions, all seem to be a bit more challenged in terms of their response in recent years. I think one of Lloyd’s strengths is that it is a marketplace. The Lloyd’s market is made up of different distinct risk appetites,” Lipman said.