Legacy Supplement 2019

Hangxiety. Are you familiar with the term?

I’d wager that a few of us have experienced it. It’s that apprehension you get the morning after the night before that you might have said or done something you regret.

A nagging feeling in the pit of your stomach that during the fuzzy height of the previous evening’s excesses you might have gone that step too far.

Combined with the fug of a hangover, this anxiety can linger longer than is welcome. And you can’t remedy it with an Alka-Seltzer and a can of Coke.

(In fact, one hangxiety sufferer on the Insider team said the other day that if a company had figured out a wonder drug for this affliction, she’d buy shares in it.)

In the live market, London and Lloyd’s are nursing their own sore heads at the moment.

It was in April last year that Chubb chairman and CEO Evan Greenberg compared the London market to “a bar room with a bunch of drunks”.

A lot of the underwriters in London and in Lloyd’s “want a reform but they just can’t put that glass down and push away from the bar”, he said.

A month on from this damning indictment, Lloyd’s kick-started its performance gap process and lifted the lid on the damage done by years of top-line growth in a softening pricing climate.

This process was mirrored – albeit more privately – across the company market and even in the US.

That reality check wasn’t pretty, and it triggered the closure of a number of syndicates, dozens of class exits and scores of job losses.

The market has emerged battered, bruised and smaller than before, but arguably in better shape than it was. But perhaps the hangxiety remains?

For short-tail classes, remedying the underwriting mistakes of the past can be swiftly done. But for long-tail classes, those bad decisions are baked in, and can resurface when you least expect it.

This is where the legacy market steps in.

The London market, and particularly Lloyd’s, will be in search of a solution to its exited or poorly written portfolios, as scrutiny on performance continues and the market’s reserving position dwindles.

For around a decade the Lloyd’s market’s reserves generated favourable development of broadly 6-9 points annually, but this was just 2.9 points in 2018.

Giving finality to those underperforming portfolios would not only free live businesses of that lingering uncertainty, but also free up additional capital at a time when rates on inwards business are improving and trade capital is less available than previously.

Meanwhile, the legacy market is healthier and more capital-rich than ever before.

For the last three years, prevailing soft market conditions have been identified as one of the top five drivers of future legacy volumes in our annual Legacy Barometer. Read on to see where it ranked this year.

So, as live carriers shake off last night’s excesses and vow to turn over a new leaf, the run-off market can be there to provide a reassuring pat on the back and a sympathetic ear.

It could even be that wonder drug for live market hangxiety.

To view the Legacy Supplement 2019 please click here.

Should we buy shares?