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On the path to profitable underwriting

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Lockton: Best Insurance Service Provider – As the insurance market strives to achieve profitable underwriting, insurers are reducing line sizes and introducing coverage restrictions, alongside rate increases. As they navigate this tough environment to the best of their ability, providers must be prepared for better times, while managing risk on behalf of their clients.

The past 12 months have been witness to the largest market correction in over 20 years. “This would have been the case with or without Covid-19 but clearly the pandemic has been an amplifier,” explains Calvin Barnes (pictured) at Lockton.

As a result, it has become increasingly difficult to deliver optimal results for clients. 

From its perspective, Lockton continues to look forward and understand the shifting landscape of the Financial Institutions Insurance sector. “We are of the belief that it will get worse before it gets better,” warns Freddie Mitchell, “In order to continue improving our client service, and the contracts we negotiate on their behalf, we need to constantly provide thought leadership to the market. We need to be fully armed with as much analysis and leverage we can muster, to make sure our clients maintain cost-effective and thoroughly robust insurance contracts.”

Lockton considers the challenging environment to be an opportunity to strengthen its position in the market. Gareth Abbott comments: “Once the market begins to soften we will be primed and ready to exploit the investments we have made – both actual and metaphorical – and fully utilise our ability to advocate and negotiate on our clients’ behalf.”

The current situation is a result of the insurance industry focusing on growth, with little interest in profitability. This meant underwriting losses were being offset by investment gains. However, Mitchell elaborates on the repercussions: “Due to the instability in capital markets, for a number of years this has become less and less of a banker for insurers. Hence the need to shift towards profitable underwriting. 

“This was only triggered, however, by the reduction in capacity being provided to the insurance sector – insurance is intrinsically linked to capital markets in a number of ways and therefore we have seen a steady decline in capacity inflows for three years or so. Previously even though it was quite clear that pricing was sometimes too cheap and totally unsustainable the reality was that there was such an enormous excess of capacity available Insurers had to use it. This was particularly relevant in Commercial D&O – which is important given it usually shares a P&L with Financial Institutions Insurance teams.”

Lockton believes the key to overcoming these issues is to be ahead of the game and never be in a reactive position. Mitchell says: “There are always going to be certain realities which we cannot change. However, with foresight and proper planning we can ensure we always deliver the best outcomes available.”

The firm anticipates another volatile period for hedge funds. However, of greater concern is the expected increase in risk. “Due to our focus and drive to continue to improve our client service, our ethos of thought leadership and forward thinking combined with our experience and knowledge of the risks facing the sector, we are best placed to advocate for our clients. We are proactive not reactive and have the skills to make the right calls ahead of time which is crucial when you are insuring tail liabilities,” Brian Horwell concludes. 

Freddie Mitchell, Account Executive, Lockton
Freddie Mitchell joined Lockton in 2017 having previously served as an Army Officer. Freddie services a diverse range of clients as a Broker and Account Executive bringing a strong knowledge of the financial eco-system, excellent market relationships and a wealth of negotiation experience together to deliver optimal results for clients. 

Calvin Barnes, Partner, Lockton
Calvin is a Partner at Lockton. He has 25 years’ experience in the financial liability sector and is a recognised expert in the alternative asset management industry. His day job is designing insurance solutions for industry participants from managers, fund groups, Administrators and CSP’s. Additionally he creates alternative risk transfer solutions for clients. 

Gareth Abbott, Senior Vice President, Lockton
Gareth joined Lockton’s Global Financial Institutions team in Autumn 2019. He specialises in the programme design and placement for financial institutions, publicly listed companies, as well as complex private and asset management entities. Gareth is extremely knowledgeable on the particular requirements of real estate managers, private equity firms and their portfolio companies.

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