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In Full: Opinion - Weakness in Numbers

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  • Topics:
    • Offshore Energy
    • Onshore Energy
    • Property - International
    • Rates
    • Topical Trends

Evidence of an appreciable slowing in the rate of reductions in open market London business was there in the first quarter following three brutal years of cuts...

Patience with heavy double-digit rate reductions in lines like property D&F seems to have run out, with glimmers of a tighter aviation market also visible if you squint from the right angle.


The energy market is on the same path. Ground is still being conceded, but the worst is past now. The vast majority of what will be surrendered has been given up already.


But as we wrote yesterday, the Gulf of Mexico wind market is closer to flat than the broader energy sector, with rates edging down on shelf business and a little worse on deepwater renewals.


Pricing in the class is probably below technical levels if you talk to most underwriters and brokers. But then it is a feast-or-famine class of business that has fed energy underwriters well for the best part of a decade now, cross-subsidising other parts of their books.


Nevertheless, it seems as if a line in the sand has been drawn this renewal season.


And I think that the structure of this particular market goes a long way to explaining the shift in dynamics this time round.


The Gulf of Mexico wind market is dominated by a single leader - Munich Re Underwriting (formerly Watkins) - which leads off the majority of placements.


The Lloyd's carrier has clearly judged that the rapid slide in rates must be halted this year and quoted the early renewals accordingly.


Given the length of the relationships and Munich Re's status in the market, it is hard to see a scenario where insureds would happily strip the carrier of its leadership positions‎. Other insurers are also likely to be wary of stepping out of line themselves on pricing.


Because of the relatively small number of alternative credible leaders, Munich Re's managing agency has real - and rare - pricing power.


When expertise and supply is concentrated, resistance can successfully take hold.


Elsewhere, the market has no such advantages. Quite simply, London has too many lead underwriters with genuine credentials.


Other classes are likely to soften for longer and hit lower depths precisely because there are 10, 12, 15 carriers that can be handed a leadership position without eyebrows being raised.


That fragmentation leaves lots of room for weak links. And where there are weak links, brokers will find them.


To invert the old adage, there is weakness in numbers.


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