Argo’s Watson calls for action on ‘unsustainable’ competition in London

The international insurance and reinsurance market needs to take responsibility for the “unsustainable” competition in London and other international specialty markets, to deliver long-term solutions for customers rather than continue to churn out “well-worn” products at the cheapest possible price, according to Mark Watson, chief executive officer of Bermuda-based Argo Group. Mr Watson said that specialty carriers and brokers need to resist the temptation to sell short-term solutions to the long-term needs of policyholders in this highly competitive international market. The Argo CEO strongly suggested that the problem predominantly lies in London, as he pointed the finger at some rivals that continue to make “unwise decisions”. “There is still more supply than demand in the London subscription market. This is one of the most complex and competitive markets we have seen for some time, with sustained pressure on pricing tempting some syndicates to make unwise decisions,” said Mr Watson. Policyholders must also play their part, according to the Argo CEO. “Policyholders too must admit that as long as they insist on paying bottom dollar, they will have neither the coverage nor the service they will surely need when a catastrophe hits,” Mr Watson wrote in his letter to shareholders that accompanied Argo’s first-half results published today. Investors need to be more “rational” in their expectations given current market conditions, added Mr Watson. “As with all our competitors who operate internationally, we know that the situation in the London market and others like it is unsustainable. The pressure on pricing in those geographies will ease only when our industry as a whole takes responsibility and makes some deliberate changes,” he said. “We must no longer refuse to adopt processes and protocols that make us more efficient. We all must commit to addressing the real, evolving needs of customers rather than dusting off well-worn products for their consumption. “Brokers, sitting close to their customers, must acknowledge a duty to ask about changing needs, consider them and help us all respond. We also must resist the temptation to sell short-term solutions for the long-term needs of policyholders,” he continued. Argo’s six-month underwriting results showed how competitive the international specialty business has become, as the insurer’s combined ratio nudged up to just under 100% and its underwriting result and net profit numbers plummeted. The firm’s core US business performed more strongly. Its combined ratio, underwriting result and net profits were all pretty much level with the first six months of last year. International business dragged on Argo’s overall six-month results because of the need for a significant reserve addition that was partially set off by a further reserve release for US business. Overall, the group result was decent given the competitive market conditions. Gross written premiums were up 19% to $1.3bn and net profit was $82.7m for the first six months of this year, versus $58.6m last year. The group’s combined ratio was 98%, compared to 95% for the first half of 2016. This increase was attributed to a number of “non-recurring expenses”, such as transaction and restructuring costs for Ariel Re. Argo reports its numbers based on where the business is underwritten rather than where it resides. The contrast between US and international numbers explains why Mr Watson is calling for the international market to take responsibility for its actions. The US business reported gross written premiums of $700m, up $90.6m or 15% over the same period last year. Underwriting income was $50.1m against $51.4m, the combined ratio was 88.9% versus 87.6% and net profit was $90.2m against $80.3m. For the first half of this year, net favourable prior-year reserve development for the US business was $18m, or four points on the combined ratio, compared to net favourable prior-year reserve development of $11.9m for the same period last year. The international business did not fare so well. It reported gross written premiums of $585.7m, up 24% or $114.9m over the 2016 first half. But underwriting profit for the period fell from $18.1m down to $4.6m, the combined ratio leapt up to 98.6% from 93.4%, and net profit fell from $33m down to $17.4m. The international business was forced to add $19.6m to reserves for prior year development, compared with a release of $10.2m in the first half of 2016.

Argo’s Watson calls for action on ‘unsustainable’ competition in London

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