Lessons from Lloyd's of London

This October, AGRiP Executive Director Ann Gergen traveled to London with member pool Municipal Insurance Association of British Columbia (MIABC) for liability reinsurance renewal conversations with underwriters from several Lloyd’s of London syndicates and affiliated brokers.

While there, Ann was able to gather perspective into the outlook for liability reinsurance renewals throughout North America as well as insight into the current state of the property reinsurance market. She also met with specialists in terrorism reinsurance.

Ann’s observations and key takeaways appear in question-and-answer form below.


Q: What were the most common questions from underwriters?
A: Every underwriter asked about the cyber coverage language pools offer their member entities, cyber risk assessments being done by pools, and the number and nature of recent cyber claims.

The underwriters also asked about exposures related to sexual abuse and molestation, law enforcement, and marijuana legalization. Less common but still notable were questions about public entity “election risks” – namely, the impact to pools when elections bring several new officials onto the governing body of a local public entity.

From a property perspective, underwriters wanted detailed analyses of wildfire, earthquake and flooding risks.There was heavy focus on the modeling tools being used by pools to quantify these risks within their memberships.

Q: What sort of cyber risk conversations were notable?
A: Conversations were mostly about eliminating “silent cyber” coverage – in other words, getting rid of coverage ambiguity by specifically including cyber coverage language. Underwriters wanted clearly expressed cyber coverage terms, conditions for coverage, limits and risk management expectations.

I also had a few great conversations about the public entity pooling industry defining “cyberterrorism” as a mechanism to consider alternative reinsurance structures that could be applied to politically motivated or catastrophic events.

Q: What about other liability exposure areas?
A: Most notable to me is that several underwriters indicated their willingness to reinsure sexual abuse and molestation coverage but only if written on a claims-made basis.

Some underwriters shared negative perceptions about public entity risks in the U.S., citing a “claims culture.” These underwriters commented on aggressive plaintiff attorney practices and advertising as well as divisive political discourse, worrying these dynamics could further inflate already-rising claims costs. They anticipate increasing claims severity will lead to greater losses and loss volatility within the reinsurance layer.

That said, the underwriters I talked to clearly understood the role and value of pools in aggressively defending public entities to protect further escalation of claims frequency or severity.

Q: What kind of questions did the underwriters ask about property losses?
A: Underwriters asked specific questions about existing large property losses, in some cases becoming quite granular in terms of desired details. Underwriters also asked about tools and strategies commonly put in place by public entity pools to help members avoid or mitigate major property losses.

Q: Is there a sense property and liability reinsurance might become less available and/or more expensive for public entity pools?
A: Every underwriter noted necessary price corrections (i.e., increases) taking place in the property reinsurance market. Lloyd’s syndicates are being more closely managed for exposure and pricing risk. The reinsurers want to remain well above the working layer of losses. I heard some indications that availability may be more limited, especially at lower retention levels.

The message was more mixed in terms of liability reinsurance pricing changes, although the underwriters again made it clear they expect pool retentions to remain reflective of underlying loss costs. A few underwriters commented that pool retentions are often too low given the limits they offer their members.

Q: What do pool representatives who are new to the London reinsurance market need to know?
A: Pool representatives in this setting have to talk about primary exposure areas and large losses in an engaging and meaningful way very quickly, repeating information as many as 10 times per day for several days in a row.

That might not sound daunting, but it’s easy to lose track of what’s already been said or to communicate less effectively at the end of a long series of meetings. These occasions require pool representatives to be excellent storytellers who are able to engage with a wide array of personalities and cultures.

Pools can expect to be asked detailed questions about large losses and litigation, loss exposures in specific areas of interest, and the efficacy of risk management programs.

Underwriters also frequently question pools about overall public entity loss trends and how their pool’s specific risk profile compares to the norm.

Any pool representative engaging in these sorts of reinsurance meetings must be able to quickly tailor how they share information to meet a specific underwriter’s needs. That requires having solid, detailed grounding of pool data in aggregate and for specific large claims. It also means being calm, open and transparent amid rapid-fire questioning.