Not as 'London' as it used to be

The marine insurance market is now more international than ever. Credit: E01 The marine insurance market is now more international than ever. Credit: E01

How fares the London marine insurance market? Generally as active and influential as ever, it seems, although it is not as ‘London’ as it used to be.

Several of the groups, notably at Lloyd’s, upon which many ports' industry operations rely for some of their cover, have in the past few months been taken over by overseas interests. For the clients this is immediately almost certainly nothing to worry about, although behind the development lies a perceived market-wide need to lever premium rates higher.

In a recent insurance market briefing, ratings agency AM Best noted that despite the extraordinary catastrophe losses of 2011, the capitalisation of most London market participants has proven resilient, as has that of the global market. This healthy reserve has a downside for the insurers, however, as there remains far too much capital in the market to back efforts by the underwriters to secure more income.

The soft market conditions of recent years, and shareholder impatience for better returns, have prompted insurers to go down the path of acquisition. Three of the groups that are among the most reliable Lloyd’s stalwarts have come under new control: Hardy falling to CAN Financial Corp, Chaucer to Hanover Insurance Group, and Brit to a Dutch company. Bermudan groups are on the prowl for a greater stake in the Lloyd’s and London field, too.

It is clear that the City will remain a lynchpin of the international market for all kinds of marine insurance, but equally as Western economies sputter, much more attention will have to be devoted to shouldering risk in Asia.

This is not as straightforward as it sounds. Of the unfolding economic scenario in his country, one executive of a Chinese firm warned in London recently: “Apart from the positive things, do think about the bad things.” The latter might include the logistical nightmare shaping up at Qingdao port, where a total of 15m tonnes of iron ore has been stranded awaiting buyers, and ships have been bringing more to the stockpile. The bottleneck was the result of steel mills cooling their production, partly in the expectation of further falls in iron ore prices.

Still, China continues to be responsible for more than half of world steel output, and as the Chinese executive noted: “We used to export raw materials. Now we buy everything.” It is worth remembering too that China does not merely buy iron ore, but it invests in projects in Africa, Australia, Canada and elsewhere that produce the stuff. And ultimately its expanding property construction sector is a key driver of trade.

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