A consortium of London insurance market organisations and associated entities (‘the industry steering group’) have published a paper after testing the resilience of the insurance market to a major loss event.
Led by Hiscox and facilitated by the management consultancy McKinsey & Company, the exercise tested two fictional loss events, happening in quick succession. The events chosen, the firms say, reflect the changing nature of risk; a highly destructive hurricane, an unprecedented cyber event, one of the largest stock market declines, and a major re-insurer default with consequent delays in reinsurance payments. These simulated events resulted in extraordinary global insurance losses of about US$200 billion. That would be the largest loss ever seen; more than twice the size of losses caused by Hurricane Katrina and at least four times larger than the World Trade Center insured loss.
Within the confines of the exercise, participants considered that they would have access to sufficient practical and financial resources to cope with the losses.
What they say
Robert Childs, Chairman of Hiscox Group said: “We have not had a market-turning event since 9/11 and it is important we understand how one might play out in today’s trading environment. Exercises such as these are often imposed by a regulator, but our industry-led approach is what makes the London Market so special. As a market, we have tested our robustness and resilience and stand ready to support our clients, trade forward, and ensure financial and economic stability during turbulent times. I would like to thank my colleagues from across the sector for their hard work and support in this project, including insurers, brokers, Lloyd’s, rating agencies, regulators and Her Majesty’s Treasury.”
Karl Hennessy, President, Aon Broking, who led one of the project’s two working groups, added: “This dry run is a demonstration of the London Market’s unique value proposition; namely the ability to bring together specialist underwriters, brokers, claims and other professionals to serve our clients at the time of their greatest need and beyond. In an increasingly competitive global (re)insurance market, such exercises, alongside the Market modernisation work (London Market Target Operating Model), are essential for London to continue to maintain and evolve its position as the pre-eminent centre of insurance expertise serving clients from across the globe.”
Commenting, the Economic Secretary to the Treasury, Simon Kirby said: “As the global hub for insurance and reinsurance, the London Market plays an important role in supporting economic activity in the UK and across the world. Thanks to the efforts of government, regulators and industry, the UK’s financial system is fundamentally strong and pro-active industry-led exercises like this one enhance our ability to identify and manage the risks of the future.”
