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For those who remember what being "an agent" was like, this section is particularly important.

As a broker the information you are expected to research and retain is enormous. In this newsletter we will attempt to update regularly in simple language—some proven, some not—some recent developments of claims, which will illustrate the pitfalls of simply "not knowing" or not remembering the latest cases and the lessons they provide.

November 2017: November 2017 Newsletter

November 2017

For more senior members in the industry, all recall that the rating and capacity cycles that usually begins with London underwriters, have a great effect on our business and the amount of hours needed to overcome and explain significant price increases and if cover can even be found in more difficult risk situations.

This information which came out of Munich Re may help you explain both to yourselves and that of your clients, the rationale for this industry uptick.

Ten reasons why Lloyd's now have a changed market:

We at ProFormBC believe subsequent industry insurers (followers) will fall back on this experience and make changes accordingly.

1. The global market is expected to suffer an aggregate insured loss of between $100bn and $125bn over Harvey/Irma/Maria/Nate. This compares to an unindexed insured loss of $41bn for Katrina in 2005. The losses of 2005 heralded a market change.

2. This estimated insured loss will be a capital event for many (re)insurers. The 2017 estimated incurred loss ratio for US property catastrophe reinsurers is now between 750% and 1,000%, and that of US property catastrophe retro writers is 400%.

3. Lloyd's has announced a net incurred loss of $4.5bn for Harvey and Irma. This is likely to increase to $6bn once Maria is included.

4. A $6bn combined hurricane loss for Lloyd's will deliver a significant market loss for the 2017 year, with a possible full year combined ratio for the market c.125%. This is a significant capital event for Lloyd's, and impacted syndicates will have to replace this capital deficit by 1.12.17 in order to "come into line" for the 2018 underwriting year. This will be very challenging for many syndicates.

5. This challenging Lloyd's situation will be shared by many other (re)insurers.

6. There will be a material number of (re)insurer failures, and in addition to many (re)insurers will have to retract their underwriting due to capital constraints.

7. The 2017 losses hit a global (re)insurance market that, after many years of continuous rate reductions, was break even at best. The Lloyd's H1 results showed an accident year combined ratio of 98.5% for the period, but this was against a very benign H1 for catastrophe losses. A normalized HI would be an accident year combined ratio in excess of 100%. The underlying 2017 market is considerably weaker than that of the underlying market in 2005 (the last "market change" year).

8. Back year reserve releases are running out. Lloyd's H1 reserve releases were only £190m (2016 H1 £600m). Even before the hurricane losses the global (re)insurance market was very fragile.

9. Non traditional capital (which underpins the US reinsurance/retrocession market) has been severely impacted, much of this capital has been destroyed or "trapped" under their collateral arrangements. This capital will only "reload" if modelled returns increase significantly. This will involve very material increase in rate, possibly up to 50%. Furthermore there is huge divergence amongst the modelling companies regarding the quantum of loss. Such model frailties will lead to capital requiring additional margin to cope with this uncertainty.

10. The worldwide (re)insurer market is effectively underpinned by a single interconnected (and now significantly diminished) capital base. As impacted lines see significant rate increases, this will lead to a "race" for all lines of business (both US and international) to secure their capital requirements to continue trading. In short order, global (re)insurance rates will increase across the board.

Reprinted with permission of Munich Re Syndicate Limited

ProFormBC uses the Lloyd's market extensively in providing protection for you and we expect that we will see the effects of the above. We do however provide a stable E&O program as our casualty specialty and therefore should not be effected significantly by the property losses in North America. As we all know however, insurance company reactions are sometimes not rationale so we will simply have to see how it shakes out.

We welcome any specific questions or examples of how your office is impacted.

Carson Thompson
Vice President

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