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London Global Reinsurance Market Share Dips 2%

Despite being the largest re/insurance market globally, the London Market has continued to face challenges and while primary business has expanded minimally over the past decade, its reinsurance market share has shrunk by 2%.

Only yesterday, the House of Lords Industry and Regulators Committee opened its inquiry into the regulation of the UK commercial insurance and reinsurance market with the aim of exploring “the extent to which regulatory policy is well-designed and proportionately applied and the possibilities for optimising policy following Brexit.”

During the legislative plenary, the call for evidence commenced with commentary from the Chief Executive Officer (CEO) of the London Market Group (LMG), Caroline Wagstaff, and the CEO of London & International Insurance Brokers’ Association (LIIBA), Christopher Croft.

In her contributions during the session, Wagstaff explained that London remained home to the largest global insurance market in the world, bringing in a huge £110 billion of income each year, larger than the next three competitors – Bermuda, Switzerland, and Singapore combined.

According to her, the market contributes 23% of the city’s gross domestic product (GDP), and £37 billion a year to UK GDP, and that has been growing in recent years.

The investment expert maintained that based on the strong performance indices “we are in a very strong position. We are a thriving market. We certainly came through the pandemic very strongly. But we’re not without threats.”

Wagstaff listed one of those threats as competition from other jurisdictions, stressing that “our market share has been broadly stagnant for the last decade,” and that the London Market’s largest category of business, primary insurance, which makes up around 70% of what the market does, has only grown by around 1% during the period.

On the reinsurance side of the business, Wagstaff explained that a decline in market share has occurred.

She said: “If you look at reinsurance, our market share has shrunk by 2% in the last decade and that’s because really, we’re not as competitive on cost, and the cost-of-capital particularly, in that sector of the market as some of our competitors are.”

Currently, at the specialist Lloyd’s, London, and wider UK re/insurance market it is more costly than some other jurisdictions, both from a regulatory and operating standpoint. Analysts have noted that while Lloyd’s is currently in the process of a digital transformation, driven in part by its need to bring down costs, these measures won’t apply to London Market companies and re/insurers elsewhere in the UK, suggesting the challenge around operating costs will persist.

In his remarks, Croft noted that over the years, “there’s been a tendency for capital requirements to be more strictly introduced into the UK market than they maybe are in other countries. But its combination of regulatory and operational costs that’s a challenge in London. But we think that the additional burden of regulation is a significant factor in that.

“The opportunities are there… that greater regulatory precision could achieve the same ends without causing unnecessary costs on our sector where they’re not dealing directly with members of the public”,  Croft added.

Industry experts believe that the decline in global reinsurance market share shows that the London and wider UK market needs to address its cost-of-capital issue or risk losing more business to other regions, which might be viewed as more efficient.

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