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New Lloyd’s Chairman Sees Premiums Increasing

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The soft market can’t last forever. This thing is cyclical, we know, and commercial insurance buyers have had a very long stretch of favorable pricing. As we conveyed in Risk Management magazine last August, various industry forces appeared to be starting to turn the property/casualty market naturally. So after a devastating first quarter for catastrophe losses across the globe (Japan quake/tsunami, New Zealand earthquake, Australia floods, U.S. winter weather and tornados …) it isn’t surprising that more and more people within the industry are now expecting the market to begin hardening.

Today, none other than newly minted Lloyds Chairman John Nelson is broaching the topic.

“The challenge is to make sure that we maintain the significance and substantial improvement of underwriting standards over the last few years. That, I think, is a sine qua non for the success of Lloyd’s,” Nelson told Dow Jones Newswires.

Last year, Lloyd’s profitability fell “because it was quite a difficult year because of claims and because of low insurance premiums and low investment returns,” Nelson said.

Still, Lloyd’s managed to produce a pretax profit of GBP2.195 billion, down from GBP3.868 billion a year earlier.

“That’s still a good sign, but the conditions in the market remain challenging because you still have low investment returns, premiums haven’t increased very much and you’ve already got three major catastrophes so far this year, including Japan,” he said. “What we hope is that market participants are able to charge premiums–in some cases, it may be higher, sometimes it may not be–which are commensurate to the risks they’re taking.”

“The aim of Lloyd’s is to encourage a market where the quality of underwriting, not just risk-taking, but also the quality of premiums being charged, are balanced,” he said.

This isn’t exactly Nelson sticking a flag in the ground and preparing for a fight, but it does sound like he sees a future where premiums in many lines will be increasing in the near future.

Lloyd’s Provides Million-dollar Coverage for Adventurer

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UK adventurer Sarah Outen is known for her amazing athletic ability and unending endurance. In 2009, she became the first and only woman (and the youngest person) to row solo across the Indian Ocean.

But that wasn’t quite enough for the ambitious 25-year-old. On April 1, she set off on her latest expedition that will take her from London, around the world, and back to London after two-and-a-half years of rowing, cycling and kayaking. A dangerous feat to say the least.

To provide coverage for such an event, Lloyd’s stepped in, issuing a $2 million insurance policy to be placed in the Lloyd’s market.

Jonathan Thomas, the Lloyd’s underwriter at Watkins syndicate who designed the policy, said: “Sarah has presented one of the most challenging underwriting propositions of any person I have quoted for personal accident and medical expenses coverage in the last quarter of a century.

Thomas also mentioned the risks posed by the duration of the trip, including uncertain food rations, muscle fatigue and the fact that she will be entirely alone.

Initial Estimates of Claims from Japan Quake

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Though it is far too early to pin down an exact number for the amount of money the Japan quake will cost insurers, initial estimates have started to surface for some of the hardest hit insurers and reinsurers.

Swiss Re, the world’s second-biggest reinsurer, has estimated it will face claims of about $1.2 billion from the earthquake and tsunami in Japan.

The figure is low because Japan’s government insures residential properties covered by non-life companies against earthquake and tsunami damage and this protection is not reinsured internationally, the Zurich-based company said in an e-mailed statement today. The preliminary claims figure is net of retrocession and before tax, Swiss Re said.

Eqecat, a catastrophe modeling firm, has stated that insurers and reinsurers will likely have losses of $12 billion to $25 billion. However, AIR Wolrdwide has estimated losses of up to $35 billion from the quake alone.

AIG has recently reported that it will record $1 billion in claims for the first quarter, most of which can be attributed to the Japan earthquake and tsunami.

Zurich-based ACE Ltd., a major player in the insurance and reinsurance market, said its initial loss estimates are $200 million to $250 million.

Though Lloyd’s of London has not officially released an estimate, an anonymous market source has said “$3 billion in losses for the Lloyd’s market as a whole sounds plausible.”

QBE Insurance Group Ltd. of Australia has said it estimates $125 million in claims from the quake and tsunami.

Below is a video of the always-entertaining Joe Plumeri speaking on the topic of Japan’s insured losses.

You’re watching Willis’s Plumeri Says Japan Insured Losses Still Unknown. See the Web’s top videos on AOL Video

Managing Risk at the North Pole

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It looks like Santa has been busy trying to improve his risk management this year. There are a lot of threats and just like all companies, Santa’s Workshop is not immune to new-age concerns. Given his giant list of who is naughty and who is nice, for example, he fears that a security breach that exposes his billions of person records could bring crippling lawsuits.

Santa Claus has announced the appointment of a Christmas Risk Officer (CRO) as part of a coordinated plan to maintain resilience at Grotto SE, the North Pole based toy manufacturing plant, as well as Claus’ flying sledge-based global distribution facility.

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The new CRO, Mrs Santa Claus, is believed to be unhappy about the appointment but accepts that someone has to do it if clients’ confidence in Christmas is to be retained.

Grotto insiders told lloyds.com that the move to appoint a CRO was prompted by the Icelandic ash cloud that caused massive business interruption problems earlier this year, particularly for North European businesses. Sources also say that, in line with other big company CEOs, Santa Claus is also increasingly concerned about linked risks to do with brand and reputation, as well data security.

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Hopefully this, as well as other new risk management initiatives from the Clauses, will help ensure you all get your toys, TVs and tubesocks this year.

Happy holidays.