Lloyd's of London's managing agents struggled through a tough operating environment in 2016, but two of them — Hiscox Ltd. and Beazley Plc — distinguished themselves in the eyes of industry observers by their adoption of novel game plans.
"Part of the strategy of both companies has been to be closer to the end client, to deal with the smaller end of the market where they are less subject to the cyclical volatility that we see at Lloyd's," Ben Cohen, an insurance analyst with Canaccord Genuity, said in an interview. "The business tends to be stickier as well. If you build a good book [of business] chances are that you can retain more of it than you would do if you're a traditional Lloyd's [insurer]."
Hiscox has bucked the trend among Lloyd's players by developing a big presence in the retail space. By 2016, this segment accounted for 45% of profits, which rose 64% year-over-year to £354.5 million on a pretax basis. The firm said in an end-of-year statement that it aims to grow its retail business by 5% to 15% every year.
Beazley, meanwhile, spent much of 2016 reaping the rewards for having developed a market-leading position in the cyber breach insurance market. This is a product bought primarily by U.S. entities, but experts say that new European rules, which increase fines for companies who leak sensitive data, should provide a shot in the arm for the European cyber insurance market.
"With growth comes more competition and the margin can get competed down ... but Beazley have quite a good head start," Cohen said.
In an effort to maintain its position, in April 2016 Beazley launched a cyber product in partnership with Munich Re aimed at major companies.
The advantages of being a leader here might be huge: One top expert predicts the cyber insurance market will, within current lifetimes, eclipse the motor insurance market, the biggest line of business in the world with gross written premiums of $671.3 billion in 2014.
Hiscox's expansionary strategies allowed it to finish the year in the sixth spot in the list of the largest managing agents, overtaking QBE Insurance Group Ltd., while Novae Group Plc ticked into tenth place with aggregate gross written premiums of £941.5 million.
The five largest managing agents remained in the same positions they occupied at the end of 2015, with XL Group Ltd leading the pack with gross written premium of £2.57 billion. In aggregate, the marketplace recorded gross written premiums of £30.78 billion for 2016, up from £27.04 billion in the year-ago period.
Amidst intense competition for business on the back of several years of low losses, underwriting profit plunged to £468 million from £2.05 billion as the market paid out for wildfires in Canada and for Hurricane Matthew. However, the value of the market's stock of euro- and dollar-denominated assets rose, which sustained the bottom-line profit at about £2.1 billion.
Pressure on underwriting results
Most of the headline growth in gross written premiums could be attributed to the fall in the value of pound sterling in the aftermath of the U.K.'s June 23, 2016, referendum in favor of leaving the EU, noted Eamonn Flanagan, an analyst with Shore Capital. The result of the referendum prompted Lloyd's to announce it would open an office in Brussels.
Some new lines of business, notably the cyber market, although its size is difficult to estimate, grew in importance. The traditional lines — fire and other property damage, third party liability, and marine, aviation and transport — retained their top spots.
In March, the Fed announced a hike of a quarter of a percentage point, and some economists predict further monetary tightening.
This could cause the capital market to turn its back on the slim pickings to be found in the insurance sector and invest in other capital instruments, an analyst who preferred not to give his name noted in an interview. This, he explained, would loosen the competitive pressures on Lloyd's of London insurers, while also enabling them to invest the money they hold in reserve into higher-yielding debt instruments.
In these and other lines of business, Lloyd's underwriters have felt the competitive pressures of insurance-linked securities, a type of bond that may be canceled if a prescribed loss such as a natural catastrophe takes place at a certain place and within a certain time-frame.
Data from the Market Intelligence platform shows the top 20 Lloyd’s Syndicates by gross premiums written in 2016, along with a breakdown of lines of business.