After some evidence of a hardening market, with increases faced by some firms in 2017, the 2018 renewal season confirmed that we are entering a more difficult period for large UK based Solicitors firms and the insurance market for these firms insisted upon rate increases at all levels.
The natural catastrophes in 2017, principally the hurricanes in the South East of the United States, resulted in most composite insurance company's losing money. This led to most companies reviewing their entire books of business with a focus on those areas that were not making money.
This was seen most significantly at Lloyd's where a Performance Review Programme was undertaken with Lloyd's reviewing all classes underwritten with a focus on those areas that had underperformed. This analysis identified Professional Indemnity for International (ie. non-US) firms as the second worst performing class within Lloyd's – the worst performing classes within this was Design and Construct and Solicitors firms, with the worst performing country was the UK.
Subsequent to this review Lloyd's advised all markets that remedial action must be taken and asked all markets writing International Professional indemnity classes to submit business plans that would return this class to profitability, with the warning that if Lloyd's did not accept their plan or find them realistic then they would remove a syndicates authority to insure this class.
Consolidation within the Insurance Industry also continued in 2018 with the announcement that Axa and XLC would merge, as well as transactions announced between China Re and Chaucer, Navigators and Hartford and Aspen and Appollo.
In addition to this Libra Managers, who underwrote a number of large firms, announced that they would cease underwriting effective 1st October 2018 after being unable to secure backing.
It was with this background that we entered the 2018 renewal season.
Options at the primary layer level were very limited this year for large firms following Libra's departure with the only realistic options being QBE, Travelers, Aviva and Beazley. QBE and Travelers had both faced worsening results across their law firm book in 2017 and 2018 and both were looking for significant rate increases, with average increases of around 10%. Aviva, while remaining competitive, have less appetite for the very largest firms (their largest insured is circa. £225mln revenues) and those with International exposures and Beazley, who are now able to offer a £10mln option through a consortium of Lloyd's syndicates that they have developed and lead, have not been competitive.
As excess layer levels, 2018 saw more departures from the PI market with Aspen being the most high profile. We saw other insurers reduce the amount of capacity that they were willing to deploy. The rest of the excess market continued to support our law firm clients but only with increases in rate. The first excess layer above the primary was a particular challenge as more losses are hitting these layers. We saw increases of up to 25% in these layers. As we moved higher in a firm's programmes the increases were more restrained and were typically in the 2.5% to 5% range above £100mln.
Aon's negotiation of excess layer terms across our solicitors' renewal was significantly assisted by the Aon Client Treaty (“ACT”), which provides 20% of pre-secured, unique Lloyd's co-insurance capacity on any layer of the programme (subject to certain conditions around the placement of the layer). The Aon Client Treaty offers additional capacity to Aon on an exclusive basis up to £80mln ($100mln). This facility assisted Aon in mitigating the increases and ensuring that our clients were able to maintain their capacity levels.
Natural catastrophe losses in 2018 appear to have reduced to more normalised levels but the outlook for Solicitors firms PI remains challenging as we move into 2019. While we have not seen a significant contraction in capacity, insurers will continue to look for rate increases through all layers of a firm's programme in an attempt to get this class back to profitability and to appease their regulators.