London Market Appetite Survey reflects buoyant market-wide growth aspirations

Howden releases its annual London Market Appetite Survey, gauging underwriting appetite by line of business for 2022 and providing comprehensive analysis for the year ahead in the London Market.

The survey of 38 insurers, comprising a mixture of Lloyd’s syndicates and company markets, was conducted in November and December 2021.   C-Suite respondents were asked to indicate the degree to which they plan to grow or contract GWP in 2022 by line of business.  The findings not only reinforce the impact of macro-economic trends – or ‘mega trends’ - across all lines of business, but reveal in detail the individual factors affecting each product area, which is crucial to clients’ decision making and purchasing patterns. 

Authors of the report Paul Cumberland, Executive Director, Howden Markets and Julia Hitchcock, Associate Director, Howden Markets say: “Given the compounded rate environment that 2022 will bring, growth ambitions are buoyant across the market with very few contractions or withdrawals and most insurers looking to at least track rate or preferably grow beyond.  In contrast to previous, more turbulent years, we see net growth in all open market lines of business, as expressed to us by C-suite.  Of course it remains to be seen whether the C-suite positioning will be met by line underwriter reality.”

However, the report also shows that 2022 will see unease around some of the London market’s mainstays, such as Catastrophe, as many in the London Market look to keep exposures muted this year whilst insurers embrace new and emerging markets such as Sustainable Energy.

Catastrophe and Cyber see testing times

Against a backdrop of above average Catastrophe losses in 2021, increasing uncertainty driven by climate change and a waning faith in the integrity of catastrophe models, the vast majority of insurers in the survey cited a strategy of reducing the degree and proportion of catastrophe exposure in their overall portfolios for the 2022 YOA.

Cyber, another core line of the London Market, is also witnessing curbed appetite. The class is unsurprisingly expected to witness the largest rate increase this year according to the London Market but may be offset by other challenges as demonstrated by a display of insurers’ limited appetite for new business (exceeding that attributable to rate on renewals).  However, there are carriers that enjoy a larger market share and have greater experience of the class that are looking to increase their Cyber books significantly by both rate and exposure.

Scott Bailey, Divisional Managing Director of Cyber at Markel confirms: “Price-elasticity in cyber insurance has been an open debate for some time. We’re starting to see that pinch-point exceeded with clients now turning away from risk transfer more than ever before, or at least choosing to have more skin in the game to manage the premium increases as best they can.”

New markets emerging

At the other end of the scale, strong appetite is evident for Sustainable Energy (Renewables) across the market, and with a further three markets considering entry to the Sustainable Energy class in 2022. Howden analysis shows this appetite increase is disproportionate to the anticipated rate change for 2022 for Sustainable Energy, which is relatively modest.  This indicates other factors at play, such as Sustainability’s prominence in commercial agendas and a class of business at the start of its evolution (smaller books of business with hefty growth ambitions), which may be driving up appetite in this class.

However, Peter Fitzsimmons, Head of Onshore Renewable Energy, London at Axis comments:  “While London’s appetite is growing to accommodate this demand, it appears to be proceeding with caution.  The opportunity is perhaps being seen more as growth potential rather than strategic realignment, as this new capacity is hesitant to lead or to participate on some of the stand-alone renewable energy placements.   Where risks are being written, the appetite appears to be strongest in offshore wind, where there is more investment from the large oil and gas companies. 
 
With growth in renewables not slowing down, technology continuing to evolve, market condition changes and insurance terms hardening, there is plenty of space for new entrants.  However they will need to keep an eye on those changing conditions to ensure rates continue to match the increased risk being presented to ensure their longevity.”

The London Market Appetite Survey report compares planned GWP growth to insurer anticipated rate change per product line for 2022 – the delta of which provides a strong indication of appetite for new business. 

Cumberland comments: “For those classes with growth targets significantly over and above insurer estimated rate increases, the suggestion is that a lot of new business will have to be written by those insurers with strong growth ambitions.  The question then becomes one of flow of business into the London market – will this be sufficient to satisfy the demands of the suppliers and keep rate movement positive?” 

2022 Growth Appetite versus 2022E RARC by Line of Business

Toby Pollard, Managing Director, Howden Markets says: “Our focus on research is designed to support the entire value chain – insurers, brokers and clients – helping them understand the direction of travel within the London Market.  This report’s insights and granular, line level detail allows more productive discussions with both clients and carriers.”