Our Trading Update

Entering the second quarter of this year, we did not anticipate any significant market changes from the previous quarter, except for a potential change of government. Our casualty renewals have softened, prompting some insureds to switch insurers for better rates and coverage. Since launching our USA offering, we’ve experienced an increase in new business enquiries from both new and existing Coverholder clients. This suggests that clients and partners are seeking alternative quotes and diversifying in a softer market to capture increased brokerage.

In June, we announced the opening of our Northern Ireland (NI) office, established to accelerate our growth plans in NI. This is a highly niche and strategic area that has historically been underserved in the placement of non-standard risks. Our European and NI operations align with our UK operations, as the market softening has led to a decrease in renewal retentions, offset by new enquiries.

Economic Market Overview

The economic landscape, characterised by high interest rates, remains a key driver of softer premiums across all major casualty lines. This, coupled with a stable regulatory environment and strong underwriting results from Lloyd’s and major (re)insurers, defines the current market. In Q2 2024, major central banks kept interest rates unchanged, signalling a soft market well into 2024 and 2025. As a result, brokers and insurers are increasing their efforts to attract new business to offset the lower income from renewals. The market has ample capacity to support new MGAs and ventures with unique distribution strategies, aiming to maintain and grow market share while keeping acquisition costs and churn rates low. We expect this trend to continue into 2024, providing insureds with a broader selection of insurers, coverage options, and competitive pricing.

Inflation remains stubborn at 2.0%, with an expected interest rate reduction now seemingly pushed to Q4 2024. This is widely expected not to impact insurance rates or the broader economy significantly.

Technology & AI

We anticipate that advancements in technology, including blockchain and AI, will enter the commercial insurance sector, reducing operational costs over the medium term and enabling quicker, more accurate decision-making. Open integrations are becoming widely available throughout the Lloyd’s and London Market ecosystem, leading to cost reductions in tasks that were once manual. Supported by Lloyd’s Blueprint Two, which aims to digitalise the Lloyd’s landscape, these advancements will be instrumental in helping brokers and MGAs pivot and adapt their businesses to reduce non-core costs and maintain profit margins during a soft market. Brokers and MGAs that embrace technology and innovation will be the clear winners in the medium term – though this is easier said than done.

Personnel & Recruitment

The recruitment sector within the insurance industry has lagged for many years, prompting competition among brokers, MGAs, and insurers for talented individuals. Recruitment trends are a key indicator of the direction of an industry sector and will be interesting to track, considering the lag effect. We expect remuneration to stabilise as brokerages contend with the soft market and higher transactional and regulatory costs.

Mergers & Acquisitions

M&A activity appears to have cooled off in Q2 compared to year-on-year activity (as detailed in Marshberry’s M&A report), largely due to a lack of targets and increased cost of capital. Private equity and consolidators continue to seek opportunities among smaller brokerages where the growth potential is higher, both in the UK, Europe, and beyond.

New Governments, New Mandates

The newly elected Labour party in the UK, following a landslide victory, has prioritised house building, which should boost the construction insurance market. The autumn budget will provide greater insight into Labour’s economic policies and their impact on the wider insurance market.

The upcoming US elections will be instrumental for US domestic insurers and business placed into the London Market. For instance, the Republican Trump Administration’s support for deregulation to encourage business growth could lead to relaxed regulatory standards and potentially lower compliance costs for insurers, affecting how much business is placed into the Lloyd’s Market from the USA.

Outlook Ahead

Despite the soft market, the number of enquiries remains strong, indicating that clients and insureds are actively seeking alternative quotes and broader coverage to take advantage of market conditions. This presents a double-edged sword for brokers, who must maintain renewal retentions and offset lost income with new business while managing their cost base. Insureds will continue to benefit from a greater selection of insurance capacity across casualty business and softer premiums for the foreseeable future. Brokers and MGAs will need to pivot and re-strategise to increase market share, which may include hiring teams and individuals with a track record of driving revenue.