In partnership with:

IFSL RESEARCH

INSURANCE 2009
DECEMBER 2009 WWW.IFSL.ORG.UK

SUMMARY

The UK insurance industry remains the largest in Europe and third largest in
the world according to the new edition of IFSL’s Insurance report. It consists
Chart 1 Global premium income by type

of insurance companies, the Lloyd’s market, intermediaries and various

specialist support professions and services. The London Market is the world’s
$bn Life insurance 58%
4,000

leading market for internationally traded insurance and reinsurance.

General insurance

International comparisons Global insurance premiums grew by 3.4% in

3,000

2008 to reach $4.3 trillion (Chart 1). For the first time in the past three
decades, premium income declined in inflation-adjusted terms, with non-life
57%
2,000

premiums falling by 0.8% and life premiums falling by 3.5% (Chart 2). The
insurance industry is exposed to the global economic downturn on the assets
side by the decline in returns on investments and on the liabilities side by a
1,000

rise in claims. So far the extent of losses on both sides has been limited
although investment returns fell sharply following the bankruptcy of Lehman
43% 42%
0

Brothers and bailout of AIG in September 2008. The financial crisis has
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Life insurance approximates to long-term insurance (in UK

shown that the insurance sector is sufficiently capitalised. The vast majority
1

section of report). Non-life approximates to general insurance.

of insurance companies had enough capital to absorb losses and only a small
Source: Swiss Re

number turned to government for support.

The UK insurance market Net worldwide premium income of the UK Chart 2 Global premium income growth
insurance market fell 18% in 2008 to £215.3bn. It should be noted that this
figure only includes data supplied to the Association of British Insurers (ABI)
Inflation adjusted growth rates (%)

and does not include estimates for non-suppliers or Lloyd’s. Early indicators
10
Non-life insurance

show that insurance premiums will remain subdued in 2009 with a recovery 8

likely to begin in 2010. 6

The decline in 2008 was due to a 23% fall in long-term premiums to

Total

£168.1bn. As the economy slowed, demand for long-term cover fell placing
4

downward pressure on premium rates. Occupational pensions premiums saw

2

the biggest decline, followed by life insurance. New long-term premium

income in the first nine months of 2009 totalled £43bn, a drop of 35% on the
0
-0.8

same period in 2008. -2 -2.0

Life insurance -3.5

General insurance premiums on the other hand increased by 8% in 2008 to

-4
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

£47.2bn, mainly a result of an increase in business from overseas. The key

Source: Swiss Re

areas of growth in recent years have been the motor and property markets.

The UK was the third largest insurance market in the world in 2008 with a Sponsors:
10.5% share of global premium income. Its premiums per head were the
highest in the world and premiums as a proportion of GDP were second
highest. UK insurance companies’ investments totalled nearly £1.5 trillion in
2008, almost double those of any other European country.

The London Market Gross premiums on the London Market were

conservatively estimated at £24.7bn in 2008, up 13% on the previous year.
The one-quarter fall in marine P&I clubs premium income during the year

1
IFSL Insurance 2009

was more than offset by an increase in insurance companies’ and Lloyd’s

premium income. Lloyd’s generated 63% of known London Market
Table 1 Largest insurance markets

premiums in 2008 with the company market accounting for a third and P&I
Clubs the remainder. London is a key centre for international insurance and
2007 2008
Premium % Premium %

reinsurance, particularly for marine and aviation business and reinsurance.

income share income share
$bn $bn

Contribution to the UK economy Insurance companies and pension funds

1 US 1,238 30 1,241 29
2 Japan 393 10 473 11

make an important contribution to the UK economy. They accounted for

3 UK 539 13 450 11

around 1.6% of GDP in 2007 and provided employment for 325,000 people
4 France 273 7 273 6
5 Germany 224 5 243 6

in June 2009, including 50,000 in the London Market. Insurance net exports
6 PR China 92 2 141 3

totalled a record £8.0bn in 2008, up from £5.4bn in the previous year.

7 Italy 142 3 141 3
8 Netherlands 102 2 113 3
9 Canada 101 2 105 2

INTERNATIONAL COMPARISONS
10 South Korea 115 3 97 2
Other 608 15 666 16

Largest insurance markets

World 4,128 100 4,270 100
Source: SwissRe

Global insurance premiums grew by 3.4% in 2008 to reach $4.3 trillion

(Chart 1, Table 1). For the first time in the past three decades, premium
income declined in inflation-adjusted terms, with non-life premiums falling
Chart 3 Global premium volume by region

by 0.8% and life premiums falling by 3.5% (Chart 2). Emerging market
$bn

countries were less affected by the financial crisis than industrial countries.
2,000

This was partly due to rising commodity prices in 2007 and the first half of
Europe

2008 which allowed their economies to perform well. 1,500

The insurance industry is exposed to the global economic downturn on the

assets side by the decline in returns on investments and on the liabilities side
North America
1,000

by a rise in claims. So far the extent of losses on both sides has been limited
Asia

although investment returns fell sharply following the bankruptcy of Lehman

Brothers and bailout of AIG in September 2008. Insurance companies
500

generally have a minor exposure to mortgage-related assets and losses on

insurance coverage have been limited to specialised lines of business such as
Others

mortgage guaranty policies, directors and officers claims and errors and
0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

omissions claims. Unlike many other institutional players in the financial

Source: Swiss Re

markets, insurers are not typically faced with the risk of funds being
withdrawn and are investors with a long-term perspective. They also employ
less leverage than banks and have longer-term liabilities and investments.
Chart 4 Premium income by type and

The financial crisis has shown that the insurance sector is sufficiently
country

capitalised. The vast majority of insurance companies had enough capital to $bn, 2008

absorb losses with the exception of a small number of US and European

companies such as ING, Fortis and Aegon which required financial aid from
US
Japan

American International Group (AIG)

UK

Many companies have been affected by the recent economic turmoil. The downturn has had a
France

profound effect on AIG, one of the largest global insurers, which nearly went bankrupt as a
Germany

result of its exposure to credit default swaps written for asset-backed securities and Italy

collateralized debt obligations. As the value of the assets underlying these instruments fell,
AIG was forced to write down its positions. In September 2008 all of the major credit-rating
South Korea Life
Non-life
agencies downgraded AIG’s triple A rating. Once it lost its rating, the company could not
Canada

sustain its positions and thus needed additional liquidity. On September 16th, its share price
PR China

fell over 95%. In order to limit the effect on already unstable financial markets, the US Spain
Government loaned AIG $85bn to facilitate an orderly unwinding of its positions in exchange
for a 79.9% equity stake. In October 2008, AIG borrowed an additional $38 billion through a
0 100 200 300 400 500 600 700 800

second secured asset credit facility created by the Federal Reserve Bank of New York.
Source: Swiss Re

2
IFSL Insurance 2009

government. In most cases the companies that turned to government for

support were those where the core insurance business was combined with
banking operations or financial guarantee business.
Chart 5 Life business by region

Advanced economies account for the bulk of global insurance. With

inflation Growth rate 2008 Growth rate 1997-2008
adjusted %

premium income of $1,753bn, Europe was the most important region in 2008
growth World

(Chart 3), followed by North America $1,346bn and Asia $933bn. The top
four countries generated more than a half of premiums (Table 1). The US and
Industrialised countries
North America

Japan alone accounted for 40% of world insurance, much higher than their
Western Europe

7% share of the global population. Emerging markets accounted for over

Indust. Asian economies
Oceania

85% of the world’s population but generated only around 10% of premiums.
Their markets are however growing at a quicker pace (Charts 5 and 6).
Emerging markets
South and East Asia

The UK insurance market was the largest in Europe and after the US and
Latin America/Caribbean
Central/Eastern Europe

Japan the third largest in the world in 2008. The volume of UK insurance
Africa

business totalled $450bn in 2008 or 10.5% of global premiums. Over the past
Middle East/Central Asia
-15 -10 -5 0 5 10 15 20

decade the US share declined slightly to 29% of the global market, Japan’s
share fell from 25% to 11% while the UK increased its share from 7% to
Source: Swiss Re

10%. The UK’s life market premiums were almost double those of any other
European country. The UK was also the second largest European non-life
insurer, after Germany.
Chart 6 Non-life business by region

Several factors can influence the premium levels in a country. Countries such
inflation Growth rate 2008 Growth rate 1997-2008

as India and China are seen as having great potential due to their large
adjusted %
growth World

population, but low income for the majority provides little headroom for
spending on insurance. In many emerging markets, there is limited awareness
Industrialised countries
North America

of the economic importance of insurance by both individuals and businesses.

Western Europe
Indust. Asian economies

Like other financial services, insurance business is becoming more

Oceania

international in its organisation and operation. The changes are coming from
Emerging markets

both the demand and the supply sides of the industry and are also being made
South and East Asia

possible by the reduction of barriers to international trade and developments

Latin America/Caribbean
Central/Eastern Europe

in information technology.
Africa
Middle East/Central Asia

Premium income by type

-4 -2 0 2 4 6 8 10 12

Source: Swiss Re

Although the insurance market is often viewed as a single entity there are
substantial differences in its two segments - life insurance on the one hand,
and general or non-life insurance on the other. Apart from the US, Germany Table 2 Insurance density
and Canada where the proportion of non-life business was larger than life
business, in most developed economies life business generated the bulk of 2008 Total of which % share

premiums. This was especially the case in Japan, the UK and France
business Non Life

(Chart 4).
$ life
1 UK 6,858 19 81
2 Netherlands 6,850 66 34

Life insurance accounted for the majority of world insurance in 2008 with
3 Switzerland 6,379 44 56

premium income totalling $2,490bn or 58% of the total (Chart 1), up 2.0%
4 Denmark 5,419 32 68

on the previous year. In inflation adjusted terms, life insurance premiums fell
5 Ireland 4,915 27 73
6 Finland 4,393 21 79

3.5% during the year, following 5.1% growth in 2007. The decline was
7 Belgium 4,299 30 70

largely due to a fall in premium income in industrialised countries (Chart 5),

8 France 4,131 32 68
9 US 4,078 53 47

particularly in the second half of 2008 as a result of the financial crisis. In

10 Sweden 3,996 29 71

some cases demand for cover fell placing downwards pressure on premium
Source: SwissRe

3
IFSL Insurance 2009

rates. Single premium products were particularly effected by the economic

downturn, causing a sharp decline in premium income in the UK, Italy,
Table 3 Insurance penetration
France and Ireland. Markets with a high share of regular premiums such as
Germany were less effected. The position of life insurers is likely improve in
Premiums as share of GDP, 2008

2009 as investment returns picked up in line with the recovery in equity

Total of which % share

markets. New business volume is likely to start recovering in 2010.

business Non Life
life
1 Taiwan 16.2 18 82

In emerging markets life premiums rose 15% in 2008 following 13% growth
2 UK 15.7 18 82

in the previous year. Developed countries are set to experience a

3 South Africa 15.3 18 82
4 Netherlands 12.9 66 34

dramatic demographic shift during the course of the next 50 years due to
5 South Korea 11.8 32 68

increasing life expectancy and a falling birth rate. Trends towards greater
6 Hong Kong 11.2 12 88
7 Bahamas 10.2 75 25

individual provision for retirement and health care and less reliance on state
8 Switzerland 9.9 45 55

pension systems should provide the life insurance industry with significant
9 Japan 9.8 22 78

growth opportunities in the future.

10 Portugal 9.2 29 71
Source: SwissRe

General insurance premiums grew by 5.5% in 2008 to reach $1,779bn

mostly due to strong growth in emerging markets. Inflation adjusted
premium income fell by 0.8% in 2008, following 1.5% growth in the
previous year. Losses from natural catastrophes and man-made events in
2008 were above the long-term average. This contributed to a deterioration
of underwriting results. In the US, significant underwriting losses suffered by
mortgage and financial guaranty insurers was also a factor. Weak demand
caused by the global recession is likely to mean that general insurance
premiums will remain subdued although a recovery is likely to begin in 2010.

Insurance density and penetration The measurement of premiums per head

gives a useful comparison of insurance density in various countries although
price variations slightly distort some figures. According to this measure, in
2008 the UK had the highest insurance density in the world (Table 2). Life
insurance premiums per head have generally grown faster than non-life
premiums for most countries. Insurance density is significantly higher in
industrialised countries than in emerging markets although there are huge
variations in penetration between various emerging market countries. It
should be noted however, that direct country comparisons may be misleading
as the level of expenditure on insurance depends on the relative importance Chart 7 Gross Reinsurance Premiums
of state and private welfare insurance which varies from one country to
another. % share, 2007

Another way of comparing insurance industries in various countries is to look

Latin America, 2%
Africa and Middle East

at insurance premiums as a proportion of GDP. Insurance penetration on this

Asia and Australia 3%

measure was highest in Taiwan with 16.2%, followed by the UK with 15.7%
8% North America

and South Africa 15.3%. Globally, insurance penetration averaged 7.1% in

2008 (Table 3).
51%
36%

Reinsurance Europe

Reinsurance is the cover insurers purchase to protect themselves against any

large losses. Since major risks are transferred to reinsurers, the primary
insurer only needs to retain capital on its balance sheet to cover its share of
Total: $190bn

the risk. Reinsurance therefore provides additional underwriting capacity.

Non-life insurance premiums generate around three-quarters of overall
Source: International Association of Insurance Supervisors

4
IFSL Insurance 2009

reinsurance premiums. This is because life insurance products mainly consist

of savings which have a small insurance risk component and are therefore Table 4 Largest global reinsurers
typically not reinsured.
2008 Country Net

Latest available data shows that North America generated the largest share of
Premiums

global reinsurance premiums in 2007 with 51% of the total (Chart 7). It was
$bn
Germany 30.4
followed by Europe with 36% and Asia/Australia with 8%. The London
1 Munich Re Group
2 Swiss Re Group Switzerland 23.7

Market plays an important role in the global reinsurance market and

3 Berkshire Hathaway US 11.4

accounts for between 5% and 10% of global non-marine treaty reinsurance

4 Hanover Re Group Germany 10.7
5 Lloyd's of London UK 8.6

and a quarter of internationally available reinsurance.

6 SCOR France 8.6
7 Transatlantic Holdings Inc. US 4.1

The reinsurance industry is highly concentrated at the top end with the largest
8 PartnerRe Ltd. Bermuda 4.0
ACE Tempest Reinsurance Ltd. Bermuda 4.0

five reinsurers accounting for over half the market. Companies from
9
10 Everest Re Group Ltd. Bermuda 3.5

Switzerland, Germany and the US dominate the rankings. Munich Re was the
Source: Fortune, Insurance Information Institute

largest company in 2008 with $30.4bn in reinsurance gross premiums,

followed by Swiss Re Group with $23.7bn and Berkshire Hathaway Group
with $11.4bn. Despite the dominance of largest companies, there are a
number of smaller market participants which tend to concentrate on their
home country. London is a premier reinsurance broking centre with a Chart 8 Insurance companies invested
number of the top ten reinsurance brokers headquartered there. It is also the assets under management
only place in the world where all 20 of the world’s largest insurers and invested

reinsurers have offices.

assets $bn, 2008

Insurance investment funds

6,000

5,000 Life

According to IFSL estimates, at the end of 2008, insurers held $18.7 trillion
Non-life

of funds under management about four-fifths of which was from life

4,000

insurance and the remainder mostly from health, property and casualty
3,000

insurance. US insurance companies accounted for a third of the total,

followed by Japanese and UK companies with around 14% each. UK
2,000

insurance companies’ investments were almost double those of any other 1,000

European country (Chart 8). 0

US Japan France

Insurers typically invest conservatively, focusing on highly-rated assets. In

UK Germany Netherlands

most countries this is enforced and controlled by regulation. The direct

Source: EA Statistics, IFSL estimates

impact of the financial crisis on insurance companies’ investments was

limited due to the wide diversification in insurers’ investment portfolios.
Subprime mortgage investments of insurance companies totalled around
$80bn in 2008 or less than 1% of invested assets. Asset allocation around the
world varies considerably. US and UK insurers typically invest a larger Table 5 Largest insurance companies
proportion of funds in equities than other developed countries. Insurers in the
UK and globally have however reduced their equity investments in recent 2008 Country Revenues

years.
$bn
Axa France 124.6

Insurance companies
Allianz Germany 97.4
AIG US 96.6
Generali Italy 95.1

Axa was the largest global insurance company in 2008 with $125bn in
Aviva UK 67.2

revenues. It was followed by Allianz $97bn and AIG $97bn (Table 5). The
ING Netherlands 64.5

list of the largest property and casualty insurance companies is dominated by

Munich Germany 54.8
Zurich Switzerland 51.9

German and US companies while Japanese companies featured prominently

CNP France 41.6

in rankings of largest life insurance companies. In October 2009, ING was

Source: Datamonitor

forced to split into two in order to comply with the rules enforced by the EU

5
IFSL Insurance 2009

on firms that received government financial aid during the financial crisis in
2008. ING plans to divest its US online banking business, insurance business Table 6 Largest insurance brokers
and about 6% of the retail banking in domestic market. The next few years
may lead to more consolidation in the insurance market as well as closure and 2008 Country
Brokerage

disposal of unprofitable lines of business.

revenues ($m)
1 Marsh & McLennan Cos. Inc. US 11,516
2 Aon Corp. US 7,310

Insurance brokers In recent years the pace of consolidation has slowed

3 Willis Group Holdings Ltd. UK 3,362

amongst the major brokers. Merger activity at the smaller end of the broker
4 Wells Fargo Insurance Services Inc. US 1,743
5 Arthur J. Gallagher & Co. US 1,611

sector continues. US firms dominated the rankings in 2008 with seven out of
6 Jardine Lloyd Thompson Group Plc UK 993

the top ten places. Two firms were from the UK and one from France
7 Brown & Brown Inc. US 966

(Table 6). Marsh & McLennan and Aon Corporation were by far the largest,
8 BB&T Insurance Services Inc. US 962
9 Gras Savoye & Cie France 786

generating nearly two-thirds of revenue of the top ten brokers. All of the
10 Lockton Cos. L.L.C. US 778

largest firms have a substantial presence in London. Despite the dominance

Source: Fortune, Insurance Information Institute

of the largest brokers, niche players in the market have certain advantages
such as flexibility and specialism.

THE UK INSURANCE MARKET

Table 7 Net1 worldwide premiums generated
Net worldwide premium income of the UK insurance market fell 18%
by the UK insurance industry2
in 2008 to £215.3bn (Table 7). The 8% increase in general insurance £bn

premiums was more than offset by the 23% decline in long-term premium
2000 2005 2006 2007 2008

income. It should be noted that these figures only include data supplied to the
UK risks 151.8 152.2 176.2 218.3 165.0
Long-term 128.5 120.2 145.1 185.4 131.2

ABI and do not include estimates for non-suppliers or Lloyd’s (see London
General 23.3 32.2 31.1 32.9 33.8

Market section on page 12). The figures also do not take into account
overseas premium revenue generated by foreign branches and subsidiaries in
Overseas risks 35.5 34.9 39.6 44.3 50.3
Long-term 20.5 25.0 29.3 33.5 36.9

the UK, which are not required to report their income to the UK authorities.
General 15.0 9.9 10.3 10.8 13.4

Nearly 80% of UK premiums in 2008 were from long-term insurance, up on Total 187.3 187.3 215.8 262.6 215.3

around 60% in the 1990s. The share of premium income from general
Long-term 149.0 145.2 174.4 218.9 168.1

business fell during this period largely due to competitive pressures (Chart 9).
General 38.3 42.1 41.4 43.7 47.2
1
'Net' defined as net of reinsurance ceded

As long-term investors, insurance companies held around 35% of

2
this table only includes data supplied to the ABI and no
estimates have been made for non-suppliers. It also excludes

investments in equities in 2008, although this proportion has decreased from

Lloyd's business (see London Market section on page 12).

around a half five years earlier. Insurers have historically derived around
Source: Association of British Insurers

15-20% of their revenue from investment income. The contribution of a

downturn in equity markets in 2008 and much lower interest rates have
resulted in a significant reduction in this revenue stream. UK insurance
companies are however well capitalised and there has been no requirement
for an external capital injection to a UK insurance company from the UK
Table 8 Number and ownership of insurance
Government. Some insurance companies have however raised additional
companies authorised in the UK1,2

capital by selling parts of their business or rights issues.

General Life Com- Total of which (%)
posite UK Foreign

Overseas premium income In 2008, member companies of the Association

owned owned

of British Insurers earned total world-wide long-term premium income

1991 570 203 64 837 83 17
1995 573 191 57 826 82 18

of £168.1bn, of which a fifth was from overseas. Their world-wide general

1997 578 177 59 841 81 19

insurance premium income was £47.2bn, of which about a quarter was from
1999 594 176 62 829 80 20
2001 597 165 60 810 79 21

overseas. This implies total overseas premium income of around £50bn, most
2003 592 160 54 806 78 22

of which was from the EU and US (Chart 11). Combined with Lloyd’s and
2005 568 159 45 772 77 23

London Market insurers, it is estimated that the full figure for UK overseas
2007 509 136 26 671 79 21
2009 472 121 24 617 80 20

premium income is in the region of £65bn.

1
data is for end-March
2
figures exclude services of EEA companies in the UK
Source: Financial Services Authority

Number of companies The number of companies authorised either by the

UK or by another European Economic Area member, to carry on insurance
6
IFSL Insurance 2009

business in the UK totalled 617 in March 2009 (Table 8). There were also 355
services of EEA companies located in the UK. The number of insurers
Chart 9 UK insurance industry net worldwide

authorised to write business in the UK has gradually fallen over the

premiums

past decade although there has been a significant increase in their average
£bn

size. In practice, fewer insurers actually write insurance than are authorised
250

to do so. 78%
200

Despite a spate of mergers and acquisitions in the past few years, and the
arrival of many European and US companies, the UK insurance industry 150 77%

remains predominantly UK-owned with the exception of the London Market.

Since 1994, companies with a head office in another EU or EEA country have
Long-term

been allowed to operate in the UK under a license from their home country
100

supervisory authority. Around a fifth of insurance companies in the UK are

foreign owned.
50
General
23% 22%

Long-term insurance
0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Source: Association of British Insurers

Long-term insurance includes permanent health insurance and pensions, in

addition to basic life insurance, endowment policies and annuities. Net Chart 10 New Long Term Business Premiums
worldwide long-term premium income of the UK insurance industry declined
by nearly a quarter in 2008 to £168.1bn (Table 7). This was due to a decrease £ million (single and regular premium business)

in domestic premium income, particularly occupational pensions premiums 30,000

and to a smaller extent life insurance premiums. Industry data for new
long-term premium income in the first nine months of 2009 showed a drop
of 35% on the same period in 2008 to £43bn (Chart 10). Regular premium
25,000

business was down 10%, single premium accumulation and production

products fell 42%, and single premium decumulation product sales fell 12%. 20,000

Premiums paid to insurance institutions are invested in order to meet the

liability at maturity. Long-term insurance funds decreased by 9% in 2008 to
15,000

£1,167bn. The fall was mostly due to declining equity markets and followed
five consecutive years of growth (Chart 28).
10,000
q1 q2 q3 q4 q1 q2 q3 q4 q1 q2 q3
2007 2008 2009

Domestic business generated around four-fifths of long-term premiums in

Source: Association of British Insurers

2008 or £131.2bn (Table 9). Occupational pensions accounted for 48% of

this, life insurance for 27% and individual pensions for 22% leaving a small
residual (Chart 12).
Chart 11 Overseas premium income by
market

Pensions generated £91.3bn in domestic premiums in 2008, a 31% decline on

£bn

the previous year. This was largely a result of the weakness in global equity
20

markets and economic downturn which has made it more difficult for
2008
1998

consumers to invest in pensions. A significant proportion of the pension

premiums increase in the years preceeding the financial crisis was a result of
15

transfers of money between pension providers following changes in pension

regulations in April 2006.
10

Life insurance premiums totalled £36bn in 2008, down 27% on the previous
year. Life business can be categorised into:
5

- Regular premium business where premiums are paid in over the term of
0

the policy at specified intervals, usually monthly (half of which is

EU US Canada Australia Other

mortgage related). Such business has declined 37% over the past decade
Source: Association of British Insurers

7
IFSL Insurance 2009

and totalled £8.2bn in 2008;

Table 9 UK companies long-term insurance
- Single premium business which consists of premiums that are paid in a
worldwide
single lump sum. These nearly doubled over the past decade and totalled £bn

$27.6bn in 2008. This increase was facilitated mainly by the

2000 2006 2007 2008

performance of savings vehicles such as PEPs, TESSAs, ISAs and

Premium income 149.0 174.4 218.9 168.2
of which

single premium life policies offering higher returns than bank and
UK contracts 128.5 145.1 185.4 131.2

building society deposit accounts.

Overseas contracts 20.5 29.3 33.5 36.9

Overseas business accounted for a fifth of all long-term premiums and 15%
Benefits paid 95.6 161.7 192.5 212.8
of which

of benefits paid in 2008. Overseas long-term premiums more than doubled

UK contracts 82.6 144.2 170.2 180.8

during the past decade to around £37.0bn in 2008. Most of this was the result
Overseas contracts 12.9 17.5 22.3 32.0

of an increase in single premium business. The EU was the most important

Size of fund 1,025 1,367 1,478 1,384

overseas market for UK insurers in 2008 with 42% of long-term overseas

Source: Association of British Insurers, Office for National Statistics

premiums, followed by the US with 29% and Canada 6%.

Largest companies The long-term insurance market has become more

concentrated over the past decade with the largest ten companies in the UK
accounting for around four-fifths of the market in 2008 (Table 10). AVIVA
plc and HBOS Financial Services alone accounted for over a fifth of the
Chart 12 Domestic long-term insurance net

market. The number of long-term insurers decreased from 176 to 121 in the
premium income

decade up to March-2009 (Table 8). This was due to competitive pressures

£bn

resulting from the concentration of the global insurance industry as

200

companies diversified into new markets and increased efficiency through

economies of scale. Insurance companies are also facing greater competition
from institutions outside the traditional insurance sector.
150

Other 48%

General insurance
100
44%
Occupational

General insurance covers a wide range of risks. Contracts are in force for a
pensions

fixed period, usually one year and are utilised by both companies and
22%
50 16% Individual pensions

individuals. UK worldwide general insurance net premiums (excluding

Lloyd’s) increased by 8% in 2008 to £47.2bn (Table 11) mostly due to an
Life insurance
37% 27%

increase in overseas premium income. This followed a 6% increase in 2007.

0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Including estimates for non-suppliers and Lloyd’s, uk general insurance net

Source: Association of British Insurers

written premiums totalled £56bn in 2008 (Table 12).

Risks covered by general insurance include:

Table 10 Largest UK long-term insurance
- Motor insurance A substantial proportion of growth in UK general companies
insurance premium income during the past decade stemmed from an
increase in motor insurance which generated around a fifth of domestic
Worldwide net premium
income, 2008

general insurance premiums in 2008 or £11.7bn.

£m % share
Aviva plc 10,028 11.5
HBOS Financial Services 8,695 10.0

- Property insurance This is the second largest business line and

Alico 8,016 9.2

accounted for 18% of UK general insurance premiums in 2008 with net

Legal & General Insurance 7,841 9.0

written premiums of £10.2bn. The increase in mortgage borrowing over

Prudential Insurance 7,643 8.8
Aegon 7,227 8.3

the past two decades has increased demand for property insurance.
Lloyds TSB Group 6,353 7.3
AXA Insurance 6,167 7.1
Zurich Financial Services 2,890 3.3

- Accident and health business Premiums from accident and health

Standard Life 2,780 3.2

business have increased steadily during the past decade reflecting their
Other 19,608 22.5

importance to both businesses and individuals. They accounted for 9%

Total 87,248 100.0
Source: Association of British Insurers

8
IFSL Insurance 2009

of general premiums in 2008 or £4.9bn. Table 11 UK general insurance worldwide

net premiums
- Marine, Aviation and Transport (MAT) insurance Lloyd’s generates the
bulk of such insurance totalling £5.4bn in 2008. Lloyd's syndicates also
£bn
1998 % 2008 %

accounted for around 6% of UK motor business, while the market's

Annual business 34.5 96 47.1 100

ability to write specialised risks accounts for its 15% share of the
Motor 11.8 33 14.8 31
Non-motor 20.1 56 29.7 63

domestic liability market.

MAT 1.0 2 1.1 2
Non-MAT reinsurance 1.6 4 1.5 3
Funded business 1.6 4 0.1 -

- Pecuniary loss and general liability This line generated most of the
MAT 0.6 2 - -

remaining general insurance premiums. Pecuniary loss premiums fell

Non-MAT reinsurance 0.7 2 0.1 -

15% in 2008 to £3.9bn.

Other funded business 0.3 1 - -
Total premiums 36.1 100 47.2 100
of which

Overseas business Around a fifth of UK general insurance premiums

Overseas1 12.6 100 11.8 100
EU 4.7 37 8.1 69

originated overseas in 2008. The most important markets were the EU

Canada 1.4 11 2.6 22

(primarily Ireland, Netherlands, Denmark and France) with 69% and Canada
US 4.0 32 0.1 1

22% (Table 11).

Australia 0.8 6 - -
New Zealand 0.3 2 - -
Other 1.4 11 0.9 8

Insurance capacity For general insurance the levels of written premiums

1
Overseas figures exclude home-foreign business

and reserves provide a guide to the capacity of the market or the maximum
2
this table only includes data supplied to the ABI and no
estimates have been made for non-suppliers. It also excludes

amount of insurance it will be prepared to accept. In addition to reserves

Lloyd's business

required to meet their estimated liabilities, general insurers are legally

Source: Association of British Insurers

required to hold additional funds of between 16% and 18% of net written
Table 12 Shares of UK general business
premiums. In practice companies hold a much greater margin. Total free
insurance net written premiums1

reserves increased at a faster pace than premiums since 2002 (Chart 13). £bn

Insurers have gradually reduced their exposure to equity markets during the
2006 2007 2008

past decade so were not affected by the falls in equity markets in 2008 to the
UK risks
- Motor 11.3 11.7 11.7

same extent as they were during the previous equity market correction in
- Accident & health 5.4 5.3 4.9

2001 and 2002.

- Property 9.5 9.7 10.2
- General liability 4.2 4.2 4.6
- Pecuniary loss 4.6 4.6 3.9

Underwriting and trading results The underwriting results of UK general

Total UK risks 35.1 35.5 35.4

insurers were positive between 2004 and 2008 primarily due to profits in
Home foreign 6.0 6.4 7.3

non-motor domestic business. In the decade up to this period, underwriting

Non-MAT reinsurance 4.9 5.8 8.0
MAT 5.2 5.1 5.4

results have been negative (Chart 14), that is, total outgoings from general
Total 51.1 52.7 56.0

business (i.e. claims, expenses and commission and changes in reserves)

1
figures in this table are different from those in previous tables

have exceeded total premium income. It is common for insurers to make a

as they include estimates for non-suppliers and Lloyd's
Source: Association of British Insurers

loss on their underwriting once claims, commissions and other expenses are
deducted from premiums. However, this loss should be more than recovered Chart 13 UK insurance companies general
by income received on the investment of technical reserves and other assets. premiums and reserves1
Normally there is a time lag from the receipt of premiums until claims are
made and settled. During this period the capital can be invested to generate
£bn

income.
45

Insurers’ trading profits fell from £5.5bn to £4.5bn in 2008. Falls on equity
40 Net written

markets led to a decrease in investment income from £5.4bn in 2007 to

premiums

£3.4bn in 2008. Insurers had therefore focused on underwriting quality as 35

they could no longer rely on investment earnings to support their profit

Total free

margins. Insurers and reinsurers have raised prices and reduced operating
reserves

costs. This resulted in improved underwriting performance from a surplus of

30

£104 million in 2007 to £1.1bn in 2008. 25

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Many firms have adopted a long-term approach to cost reduction such as

1
excludes UK business of branches and subsidiaries

using technology more effectively and re-engineering business processes.

of foreign insurers
Source: Association of British Insurers

9
IFSL Insurance 2009

Outsourcing has also been a preferred approach, where back office functions
have been outsourced to outside firms. This has allowed insurers to focus
Chart 14 UK worldwide general insurance

more on their core business. Some firms have turned to offshore locations in
trading result

order to achieve savings.

£bn
7

Largest companies The UK general insurance market is one of the most

6

concentrated in Europe as a result of large-scale merger activity. The largest

5

ten motor insurers handled nearly 70% of business in 2008. Aviva (with
4

£5.4bn in premium income) and RBS Insurance (£4.6bn) alone accounted for
3

nearly a third of the market (Table 13). Similarly, the largest ten commercial
2
1

property insurers accounted for around 90% of the market.

0
-1

Run-off market
-2 Trading result
-3 Investment income

"Run-off" means the management of liabilities and exposures left behind

Underwriting results
-4

when an insurance or reinsurance company stops underwriting a business.

-5
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Insolvency has been the biggest factor that has forced companies to cease Source: Association of British Insurers

underwriting and go into run-off. The US, UK, Bermuda, Japan, Germany
and France account for the bulk of this market.

The size of the UK run-off market has grown significantly over the past two
decades. This was primarily due to large catastrophe losses. It is now
regarded as a separate part of the market with its own specialists and its own
Table 13 Largest UK general insurance

department at the FSA. According to the latest KPMG Run Off Survey,
companies

liabilities of the UK general insurance run-off market amounted to £37.4bn

worldwide net premium

at the end of 2008, up over £9bn during the year (Table 14). The 2008 total
income, 2008
£m % share

represented around 18% of the general insurance market as a whole.

Aviva 5,415 16.0
RBS Insurance 4,646 13.7
AXA Insurance 2,979 8.8

The large increase was largely due to the demise of the financial guaranty
RSA 2,569 7.6

insurance market and the devaluation of UK pound against other major

Zurich Insurance plc 2,227 6.6

currencies. The high level of claims paid by run-off companies through

BUPA 1,608 4.8
Allianz Insurance 1,213 3.6

accelerated settlements and commutations partially offset this increase.

AIG UK 1,029 3.0

Collectively, financial guaranty monoline insurers in the UK held total

HBOS 964 2.9
NFU Mutual 835 2.5

liabilities of approximately £7.1bn at the end of 2008. Due to the severe

Others 10,314 30.5

downturn in the financial markets and the liabilities incurred by these

Total 33,799 100.0

monoline insurers, the majority cut their business drastically, most

Source: Association of British Insurers

suspending all new financial guaranty business.

Distribution

Insurers can sell their products either directly to customers or through tied Table 14 UK general insurance run-off market
agents and independent intermediaries. Innovative distribution channels have
made strong headway on the UK insurance market although traditional
2008 Liabilities % annual

channels still retain overall dominance.

£bn share % change
General insurance run-off market 37.4 18 32
- Lloyd's (1993 onwards) 2.5 3 14

Independent financial advisors (IFAs) and direct salesforces generate most of

- Equitas (Lloyd's 1992 and prior) 5.9 3 34

new business for long-term insurance (Chart 15). Bancassurance has grown
- Other solvent run-off 19.7 7 66
- Insolvent run-off 9.3 5 2

in recent years mirrored by a fall in tied and other direct salesforces. For
Active market 167.0 82 -13

general insurance, brokers are the dominant distribution channel although

Total 204.4 100 -6

their share fell to 57% in 2008 from around two-thirds a decade earlier.
Source: KPMG

Company agents’ share fell from 17% to 6%. Direct selling and
bancassurance accounted for most of the remainder.
10
IFSL Insurance 2009

Other services
Other auxiliary services cover the traditionally recognised insurance services such as loss
Chart 15 Sources of new long-term premiums
adjusters, actuaries and other support services that include financial, computing, recruitment,
legal services, risk management and consultancy services.
% share

Loss adjusters play a fundamental role as independent claims specialists who verify the
80

liability of an insurer for a claim. The Chartered Institute of Loss Adjusters, to which the 70

majority of practitioners belong, has around 2,000 members. Loss adjusters' fees are paid by
Independent Financial
Advisers

the insurers who rely on them to check claims for quantity, description and pricing. For most
60

claims insurers are able to make a payment immediately but in some cases they may send a 50
claims inspector to check upon the circumstances. For larger or more complicated claims,
insurers employ the skills of a loss adjuster.
40

Actuaries are employed by insurers, Lloyd's syndicates and consulting organisations. In life
30 Direct salesforce

insurance, each company is required by law to have an Appointed Actuary. Using probability
and tied agents
20

theory and life-expectancy data to estimate levels of risk, one of their principal roles is to set
premium rates for life insurance and personal pension policies and to advise on bonus
10 Direct marketing and other

payments. They also may be involved in product development, marketing, portfolio 0

management and a range of managerial roles. With the availability of more detailed statistics,
2004 2005 2006 2007 2008

actuaries have increasingly become more involved in general insurance. Source: Association of British Insurers

The Institute of Actuaries in England and the Faculty of Actuaries in Scotland are the two
professional bodies for UK actuaries. The Faculty and Institute work very closely together as
The Actuarial Profession in the UK. The Institute of Actuaries and the Faculty of Actuaries
estimate that around a third of their 9,500 Fellows in 2008 are directly employed by the Chart 16 Sources of general business
insurance industry, with a further 40% working as consultants. The remainder are employed premiums
in various other areas such as industry, public service, financial institutions and education with
about a quarter of their members working in other countries.
% share
Personal Commercial
100 1% 2% 3%
6% 8%

Insurance brokers Traditionally the role of insurance brokers has been to act
21% 26% 5%
6%

as intermediaries in the placing of insurance business for their clients,

80

negotiating the price and scope of coverage and advising clients on the design
24%

of their risk programs. Despite increasing competition, brokers and

60 32%

intermediaries still retain the largest share of insurance distribution in the

87% 83%

UK, in particular of commercial business. The share of independent

40 7%

intermediaries fell slightly in the decade up to 2008 for general insurance

54%

commercial lines to 83% of the market. Independent intermediaries

20 35%

accounted for around a third of the personal lines market, down from 54% a
decade earlier (Chart 16).
0
1998 2008 1998 2008
Independent Company Direct Other
intermediaries agents

Company agents include direct sales forces and tied agents. Direct sales
Source: Association of British Insurers

forces are sales personnel employed by insurers whereas tied agents represent
intermediaries who sell the products of one particular insurance company but
are separate from it. The importance of company agents as a distribution
channel has decreased markedly over the past decade from close to a fifth to
6% in 2008. The most dramatic decrease was seen in the accident and health
sector.

Direct selling represents the sale of insurance directly by insurers and

consists almost entirely of direct telesales. In 2008 it generated 21% of the
general insurance business, up 10% on its share a decade earlier. Most of the
increase was in personal lines business, including motor insurance
distribution, the accident and health sector and household property insurance.

Banks and building societies (bancassurance) Despite difficulties over the

past year resulting from the global financial crisis, banks and building

11
IFSL Insurance 2009

societies have certain advantages in selling insurance products, such as an

established customer base from their mortgage business along with the
corresponding databases of information. Overall, in the UK, banks and
building societies distributed 10% of general insurance in 2008, up on 3% a
decade earlier.

Independent financial advisors (IFAs) sell long-term insurance products.

They act as a representative of the customer and their role is to provide advice
to the client. Most IFAs are small independent companies and brokers
although some banks and buildings societies also own IFAs. In 2008, IFAs
generated 77% of new long-term premiums, having gradually increased their
share in recent years.

THE LONDON MARKET

The London Market is the world’s leading market for internationally traded
insurance and reinsurance. It is a distinct, separate part of the UK insurance Table 15 London Market active participants
and reinsurance industry centred in the City of London. The London Market
consists mostly of general (non-life) insurance and reinsurance, and
end-2008 Number

predominantly involves high-exposure risks. It enjoys a unique status in the

IUA1 41

global insurance industry as it offers a market place for those risks that
Marine P&I Clubs2 17
Lloyd's syndicates 80

cannot easily be placed in local markets, including policies that may contain
Lloyd's market brokers 176

complex features. The international insurance and reinsurance companies on

1
October 2009 - IUA 'Ordinary' members; 2 figure only

the London Market are located in a small area, with virtually all of the
includes members of the International Group of P&I Clubs
Source: IUA, Lloyd's, UK P&I Club

business being written within the Square Mile of the City. This is probably
the most important competitive advantage of the London Market as it
produces close ties between buyers, brokers and insurers, and facilitates
access and the flow of information amongst all participants.

London Market participants Table 16 Lloyd's active membership

The main operators in the London Market are insurance companies, Lloyd's,
Protection and Indemnity (P & I) Clubs and brokers (Table 15). There is also
Number of 1995 2000 2007 2008

a concentration of highly specialised service providers including claims

Active members 14,884 4,170 2,062 2,011
Individual 14,744 3,317 907 773

adjusters, actuaries, lawyers, accountants and consultants. During the past

Corporate 140 853 1,155 1,238

decade, the London Market has been going through a significant

Syndicates 170 156 72 81

consolidation process during which the number of insurers has more than
Source: Lloyd's

halved. This was the case not only amongst the insurance companies but also
amongst Lloyd’s syndicates and brokers. There have also been a significant
number of entrants since 2001, both at Lloyd’s and within the Company
market, backed by a diverse range of international capital. The London
Market has become more international in both the sources of its business and
the ownership of its participants. Three-quarters of companies in the London
Market are foreign-owned and many brokers are members of larger broking
groups, many of which also have overseas owners.

Company market London company market participants include:

companies operating from London offices that are members of the
International Underwriting Association (IUA), other companies with London
underwriting offices; EEA licensed insurers and reinsurers operating from a
European office; contact offices of foreign companies not authorised to
transact business in the UK; and P & I Clubs and other marine mutuals. The

12
IFSL Insurance 2009

London Market Reform Group

The Market Reform Group is a cross-market body that aims to bring about reform of
Chart 17 Syndicates and managing agents
processes in the London insurance market. The goal of the Market Reform Group is to
ensure that London is the market of choice for insurance risks. The Market Reform
No. of syndicates Average syndicate

Programme consists of a number of projects designed at increasing efficiency in placing

and managing agents (lines) capacity (bars), £m

business, in processing claims and in settling accounts. The Market Reform Group provides
150 250

the overall governance and is made up of representatives of the International Underwriting

Syndicates

Association, Lloyd’s Market Association London, International Insurance Brokers 200

Association and Corporation of Lloyd’s. The key body involved in the co-ordination and
120

reporting of progress is the Market Reform Office. Its role is to support the Market Reform
Group by keeping track of all reform activity, monitoring progress against the direction that
150

the market has set and making information available to firms.

90 Managing
agents
100

The first significant reform achievement was the introduction and adoption as a standard of
the London Market Principles Slip. This ensured a common format and content to the way 60

that business was introduced to the market. This was followed by the introduction of the
50

Market Reform Slip, building on the LMP Slip and further increasing the efficiency of the
placement process. In June 2007 this was replaced by the Market Reform Contract. 30
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
0

Source: Lloyd's

London Market is the only place in the world where all 20 of the world’s
largest insurers and reinsurers have offices. The IUA is the world’s largest
representative organisation for international and wholesale insurance and
reinsurance companies. It exists to promote and enhance the business
environment for international insurance and reinsurance companies operating
in London.

Lloyd's is not an insurance company but a market organised and supervised

by the Corporation of Lloyd's under the provision of the Lloyd's Acts 1871 to
1982. It is one of the world’s largest commercial insurers and the sixth
leading reinsurer. The Lloyd’s market is a brokers’ market that focuses on
high risk, specialist insurance for businesses. Lloyd’s also provides insurance
products suitable for the general public such as motor, travel and household
insurance. Lloyd’s is famous for developing new and innovative insurance
products. Policies for motor, burglary and computer fraud were all developed
there. The consolidation at Lloyd’s has been even greater than on the
company market. The number of syndicates more than halved in the decade
up to 2008 to 1,238 (Table 16, Chart 17). During this period Lloyd’s average
syndicate capacity increased more than 3 times to £199 million.

Since Lloyd’s is not a company it has no shareholders and accepts no

liability centrally for risks insured in the market. Lloyd’s is a society of
individual and corporate members each of whom accepts insurance risks as
members of one or more underwriting syndicates. Capital is supplied on the
basis of an annual venture, with continuing support from providers needing
affirmation each year. Where a corporate member and a managing agent of a
syndicate are owned by the same company or part of the same corporate
group, that capital provider is described as an ‘aligned’ member. Individual
members (traditionally known as “Names”) are liable to the full extent of
their private wealth to meet their insurance commitments, while the corporate
entities trade with limited liability. Individual members can also underwrite
at Lloyd’s with limited liability by participating in a variety of investment
vehicles.

Lloyd's businesses are independent and operate within the wider franchise

13
IFSL Insurance 2009

operated by the Corporation of Lloyd's. Working with the market, Lloyd's

seeks to achieve consistent underwriting profit, deliver a strong common
Chart 18 Premiums of P&I Clubs

rating and mutual security, and attract the highest quality management and
underwriting talent. Lloyd’s overall objective is to be the platform of choice
$m, gross premiums, operational location of P & I Clubs

for insurance and reinsurance buyers and sellers to access and trade both
2,800 5% US
8% Japan

specialist and large property and casualty risks. 2,400

25% Nordic

Brokers are a key part of the London Market, bringing into it from their
2,000

networks of offices around the world the vast majority of the insurance and 1,600

reinsurance risks placed with both Lloyd’s syndicates and the companies.
Only a small proportion of London Market business is placed directly with
1,200

insurance companies. The number of brokers on the London Market has

62% UK
800

declined in recent years, due to mergers and corporate restructuring. The

number of Lloyd’s brokers totalled 176 at the end of 2008, down from 211 a
400

decade earlier. 0
1998 2000 2002 2004 2006 2008

Protection and Indemnity Clubs (P & I Clubs) and other mutuals P & I
Source: IUMI - International Union of Marine Insurance,
Standard & Poors Marine Mutual Report

Clubs are mutual insurance associations of shipowners and charterers. They

form the largest group of London Market mutual associations, which differ Chart 19 London Market gross premium
from proprietary insurance companies in having risk capital subscribed by
income
their policy holders rather than shareholders. Marine P & I Clubs were £m

created to serve the marine industry and they mainly insure their members
against risks not covered by the Lloyd's and marine companies' policies. This
30,000

includes collision damage and liabilities for loss or damage to cargo,

Total
25,000

pollution, loss of life or personal injury on ships, and collision liability,

including damage to port installations.
20,000

Lloyd's

London is the biggest centre for marine protection and indemnity insurance
15,000

offered by P & I Clubs. Data compiled by Standard & Poor’s for five of the 10,000

main operational locations for P & I Clubs shows that the UK’s share of this
Insurance
companies

market was 62% in 2008 (Chart 18), still much the highest share but the
5,000

lowest in the past decade when it has typically been between 65% and 70%.
Marine P&I Clubs

The next largest centres for marine mutual insurance were the Nordic
0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

countries, with a 25% share, with the balance being made up by Japan and Source: ABI

the US.

Premium income
Chart 20 London Market gross premium
income by type

Gross premiums on the London Market totalled £24.7bn in 2008, up 13% on

£m

the previous year’s total (Charts 19 and 20). The one-quarter fall in marine 25,000

P&I clubs premium income during 2008 was more than offset by an increase
in insurance companies’ and Lloyd’s premium income. The 2008 total was 20,000 Non-marine Treaty

nearly double the premiums generated a decade earlier, largely due to growth
reinsurance

in reinsurance business and an increase in capital originating from the US 15,000

during this period. In 2008 Lloyd’s generated 63% of known London Market
gross premiums, with the company market generating a further 33%. P & I
Home-foreign
10,000

Clubs accounted for the remainder. Over the past decade Lloyd's share of
total London Market business increased at a greater pace than insurance
5,000

companies.
MAT business

It should be noted that these figures on London market premium income

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

represent conservative estimates as they do not include domestic risks

Source: ABI

14
IFSL Insurance 2009

written on the London Market which probably account for 5% of UK

general insurance premiums. The estimate for London Market premiums also Chart 21 Lloyd's financial highlights
does not include the activities of insurers who write London Market risks, but
from outside the UK. Some EEA companies operating in the London Market
£m

operate as a branch rather than a subsidiary, which means that business which
Capital reserves and subordinated loan notes
20,000 Profit before tax Gross premiums written

originates in their London offices is not always recorded as London Market

business. Consequently the value of actual premium income of the London
16,000

Market may be increasingly understated.

12,000

Company market There is no precise data on the overall performance of the

company market mainly because the published accounts for a large number
of companies do not show London Market business separately. The ABI
8,000

estimates that gross premiums in this part of the market totalled around
£8.1bn in 2008, up from £6.7bn in the previous year. In an effort to increase
4,000

profitability and improve their capital base insurance companies have shown
greater emphasis on cost control and underwriting discipline in recent years.
0
2005 2006 2007 2008 20091
1
First half of 2009

Lloyd's premium income on the London Market totalled £15.7bn in 2008, up

Source: Lloyd's

from £13.8bn in the previous year. Around 45% of Lloyd’s gross written
premiums came from home-foreign business, MAT business accounted for a
third, and non-marine treaty for the reminder. Lloyd’s holds licences,
supported by a network of local offices, to conduct direct insurance business Chart 22 Lloyd's premium income by class
in over 80 countries, thus it is stronger than the company market in the direct of business
insurance of home-foreign risks. Reinsurance can be undertaken in these and
many other territories with Lloyd’s operating in over 200 countries and
% share
Treaty Reinsurance

territories worldwide. In 2007 Lloyd’s opened an onshore reinsurance

35

operation in Shanghai, gaining a strategic foothold in one of the world’s

30

fastest-growing insurance markets. 25 Property

Lloyd’s profit before tax of £1.9bn in 2008 was down from £3.8bn in the
20 Casualty

previous year (Chart 21). This was a solid performance during an

exceptionally turbulent year for the financial sector. Higher levels of
15

catastrophes and attritional claims were partially offset by currency 10

movements. Return on investments of 2.5% in 2008 resulted from a

Marine

conservative investment strategy. Lloyd’s reported a strong financial result in

Energy
5 Motor

the first half of 2009 with profit before tax of £1.3bn, up on £949 million in
Aviation

the same period in 2008. The strong performance in 2009 was result of
0
2004 2005 2006 2007 2008

foreign exchange movements, increasing demand for Lloyd’s security and a

Source: Lloyd's

flight to quality from both brokers and policyholders. Since 1 January 2005,
Lloyd’s main market financial reporting regime has moved from a three-year
fund accounting basis to an annual accounting basis under UK Generally
Accepted Accounting Principles.

Lloyd’s market capacity, or the maximum volume of insurance premiums the

market can accept in a single year, totalled £16.1bn in 2008. Since 1994 there
has been a major restructuring of the market with the introduction of
corporate capital. This resulted in a decrease in the number of syndicates and
large increase in the average managed capacity. The providers of capacity
have also changed as the proportion of individual capital in the market has
steadily decreased during this period.

15
IFSL Insurance 2009

P & I Clubs’ gross premiums in the London Market totalled £907 million in
2008, down 27% on the previous year. Most of P & I Clubs’ premiums were
Chart 23 Marine, aviation and transport

in MAT & MAT reinsurance.

business
£m

Types of insurance transacted on the London Market 8,000 11%

London is a key centre for international insurance and reinsurance,

7,000

particularly for marine and aviation business. In terms of global non-life

6,000 P&I Clubs 35%

premiums, London Market’s share is only around 3%, but its share of
18%
5,000

industrial insurance business is higher at between 10% and 15%.

Company market
4,000 28%

Home foreign has been the most buoyant part of the London Market over the
3,000

past decade (Chart 20), increasing its share from 32% in 1999 to 42% in
2,000 54%
Lloyd's

2008. MAT business increased from 28% to 34% during this period, while
54%
1,000

the share of non-marine treaty reinsurance fell from 39% to 24%. 0

2001 2002 2003 2004 2005 2006 2007 2008

Home-foreign business accounts for most of business placed on the London

Source: ABI

market. It represents non-marine direct insurance and facultative reinsurance

written in the UK for property and casualty risks situated outside the UK.
Property insurance comprises the largest share of home-foreign business.
Premiums totalling £10.3bn were generated in 2008 up from £9.0bn in the Chart 24 Direct marine premiums market
previous year. share

Non-marine treaty reinsurance represents insurance of liabilities assumed

% share of direct marine premiums

by insurers that protect the original insurer against losses that may be
25

incurred on a portfolio of risks. Gross premiums for non-marine treaty

reinsurance totalled £5.9bn in 2008 up from £5.2bn in the previous year, but
20

significantly down on the £8.0bn to £11.6bn range between 2002 and 2006.
UK

Lloyd’s generated more than two-thirds of the business with insurance

companies making up the remainder.
15

The London Market's share of the world market for non-marine treaty
Japan
10 US

reinsurance has remained relatively stable, estimated to be between 5% and

Germany

10%. This includes all reinsurance organised within local markets. The
France

London Market is estimated to account for a quarter of internationally

5
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

available reinsurance. Source: International Union of Marine Insurance

Marine, aviation and transport (MAT) business mainly covers damage to

the hull and cargo of ships and aircraft, along with the liability for injury and
death to passengers. It includes both direct and reinsurance business. Gross
premiums from MAT and MAT reinsurance business totalled £8.5bn in 2008,
up from £7.5bn in the previous year (Chart 23). Within the MAT sector,
aviation insurance business has gained in importance over the past decade.
Lloyd's remains the overall market leader in this class, with more than half of
premiums, ahead of the one-third share of companies, with P&I Clubs
making up the remainder.

Despite a drop in its share over the past decade, London still remains the
leading centre for marine and aviation and reinsurance business. London had
the largest market share of global marine net premiums in 2008, 16.7% up
from 14.8% a decade earlier (Chart 24). Japan was the next largest market

16
IFSL Insurance 2009

with 12.2% but the bulk of its business was from its own domestic market.
London is the market leader in aviation insurance along with the US and Chart 25 Lloyd's premium income by region
France. % share

London Market premium income by region

100
9% Rest of world 11%

An important feature of London Market business is its wide geographical

90
15% 14%

distribution. Over the past decade the geographic spread of business done by
80 Rest of Europe

London Market insurers has changed. Although the mature markets of the US
70

and Western Europe remain the major sources of income, growth in insurance
60 36% 24%
UK
Non-marine Treaty

in these countries is far slower compared to the developing markets of Latin

50
reinsurance

America, Asia and Eastern Europe.

40
30 Home-foreign

There is no accurate breakdown of geographical sources of premium income

20 40% Americas 51%

on the London Market as a whole due to the difficulty in determining the

10 MAT business

geographical origin of some types of business such as MAT and non-marine

0
2000 2002 2004 2006 2008

treaty reinsurance which may be generated in more than one country. Lloyd’s
Source: Lloyd's

publishes a comprehensive geographical breakdown of its business. This

shows that North America was the most important source of its business in
2008 with 44% of premiums. The UK generated 22% of premiums followed
by rest of Europe, with 16% (Chart 25). The remainder of business
originated from emerging markets, which has generally been on a rising trend
over the past decade.

The importance of the US as a source of business for the London Market has
been growing over the past decade. It is the largest source of business for
Lloyd’s. The London Market is one of the leading providers of direct
insurance and reinsurance to the US attracting around a fifth of outward US
reinsurance and half of US primary insurance placed abroad.

17
IFSL Insurance 2009

CONTRIBUTION TO THE UK ECONOMY

Chart 26 UK output
Output GDP index 2000=100

Latest available data shows that in 2007, insurance corporations and pension
250

funds accounted for approximately 1.6% of GDP or nearly a fifth of the UK

Financial
services

financial services contribution (Chart 26). This measure excludes brokers and
other auxiliary professions. Income from large overseas investments of the
200
Insurance

sector is also not included in this measure as it is not part of GDP. It should
be noted that the output of the insurance sector can be heavily impacted by
Services
150

large claims which cause a reduction in value added.

Total UK

Employment
100

Employment in the insurance sector totalled 325,000 in June 2009. Over

130,000 of this was in activities auxiliary to insurance such as insurance
50
2000 2001 2002 2003 2004 2005 2006 2007

agents, brokers and actuaries. Employment in insurance was down around

Source: Office for National Statistics

10% on a decade earlier. Job cuts were due to post-merger rationalisations,

rise in direct sales and cost cutting in the insurance arms of large financial
institutions. In total, insurance and pension funds accounted for 31% of
financial services employment and 1.2% of total UK employment (Table 17).
Table 17 UK employment in the
The London Market provides employment for approximately 40,000
insurance sector
insurance employees in the City of London and adjacent areas. In addition to
Thousands 2000 2005 2008 20091

this, the London Market also generates around 10,000 jobs in other parts of
Insurance 228 196 178 176

the country which help in administrating its business.

Auxiliary to insurance 135 134 134 133
Total insurance 363 330 312 325

Net exports
Financial services 1,065 1,102 1,026 1,004
UK employment 25,809 26,525 26,859 26,533

The UK insurance industry generates net exports by selling cross-border

Insurance as % of

insurance and reinsurance cover. Auxiliaries, such as brokers, also generate

- Financial services 34.1 30.0 30.4 32.4

net exports by earning commission on the placement of cross-border risks.

- UK employment 1.42 1.24 1.22 1.22
1June 2009
Source: Office for National Statistics

Insurance net exports increased 48% in 2008 to £8.0bn, with most categories
improving relative to 2007 (Table 18, Chart 27). Reinsurance showed the
most notable rise, with an upsurge in the surplus from £489m to £1.5bn,
while other direct insurance also expanded from £3.7bn to £4.5bn. Insurance
brokers continued the steady growth seen
over a number of years to £1.7bn from Table 18 UK insurance net exports
£1.5bn. Exports of freight insurance fell £m
slightly to £113m from £146m. 2000 2001 2002 2003 2004 2005 2006 2007 2008

In addition to net exports, insurance

Insurance trade balance
Life insurance and pension funds 1,417 2,174 797 213 -712 -1,464 -1,264 -502 216

companies also generate overseas income

Freight insurance -680 -713 -678 -653 -740 -819 -936 -876 -960

from earnings on direct and portfolio

Other direct insurance 412 -579 2,164 1,825 3,350 729 1,805 3,674 4,531
Reinsurance
investment. However insurance
-296 1,011 1,473 2,355 1,023 970 1,691 489 1,507
Insurance brokers 2,220 1,907 2,052 2,247 1,214 1,245 1,557 1,546 1,669

companies’ direct investment income,

Insurance service earnings 3,073 3,800 5,808 5,987 4,135 661 2,853 4,331 6,963

which includes interest, profits and Deduct: Imports of freight insurance 721 762 758 778 830 891 979 1,022 1,073

dividends from overseas subsidiaries and

affiliates, fell from £5.0bn in 2007 to
Net exports of insurance sector 3,794 4,562 6,566 6,765 4,965 1,552 3,832 5,353 8,036

minus 449 million in 2008. This was a

Source: National Statistics

18
IFSL Insurance 2009

result of increased losses reported by insurance institutions resulting from the

economic downturn. Earnings on portfolio investment totalled £8.8bn in
Chart 27 UK insurance net exports
2008. £m

International comparisons The biggest trade deficit in insurance services 8,000

was recorded by the US, $32.5bn in 2007. Deficits of $9.8bn and $8.9bn were
reported by China and Mexico. The UK trade surplus on insurance services 6,000 Total

picked up to $8.5bn from $4.6bn in 2006. Switzerland recorded a $4.1bn

surplus on insurance. Japan’s deficit on insurance remained in the region of 4,000

$3bn.
Other
insurance
2,000

Provision of investment funds

Insurance
brokers.
0

Insurers generate nearly a half of institutional investment holdings in the UK.

Life ins.
& pen. funds

In 2008, they accounted for £1,496 million of funds under management, -2,000

down 6.5% on the previous year due to falls on equity markets (Chart 28).
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Over 90% of investment funds arose from long-term insurance policies.

Source: Office for National Statistics

General insurance policies, which by definition have a shorter timescale with

claims less easy to plan for, contributed the remainder. Chart 28 UK insurance industry investment
funds
Insurance companies held around 35% of investments in equities in 2008,
down from around a half five years earlier (Chart 29). Some insurance
£bn General funds

companies have been forced to reevaluate their portfolio allocation and

Long-term funds
1,500

increase their holdings of other asset classes in order to increase their

solvency rations. Latest available data shows that in 2006, around 15% of all
1,200

UK share holdings, or around £273bn, were in the hands of insurance

companies as beneficial owners.
900

600

300

0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Source: Office for National Statistics

Chart 29 UK insurance companies' asset

allocation
% share
60
Ordinary company
shares
50

40

Other
30 company
securities
UK public
20 sector securities

Other
10
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Source: Office for National Statistics

19
IFSL Insurance 2009

OTHER SOURCES OF INFORMATION:

IFSL Research:
Association of British Insurers Report author: Marko Maslakovic
www.abi.org.uk
Director of Economics: Duncan McKenzie
British Insurance Brokers’ Association d.mckenzie@ifsl.org.uk +44 (0)20 7213 9124
www.biba.org.uk Senior Economist: Marko Maslakovic
The Chartered Insurance Institute m.maslakovic@ifsl.org.uk +44 (0)20 7213 9123
www.cii.org International Financial Services London
29-30 Cornhill, London, EC3V 3NF
Insurance Information Institute
www.ifsl.org.uk
www.iii.org
------------------------------------------------------
International Underwriting Association International Financial Services London (IFSL) is a private
www.iua.co.uk sector organisation, with nearly 40 years experience of
successfully promoting the exports and expertise of UK-
International Union of Marine Insurance based financial services industry throughout the world.
www.iumi.com
This report on Insurance is one of 16 financial sector reports
London & International Insurance Brokers’ Association in IFSL’s City Business Series. All IFSL’s reports can be
www.liiba.co.uk downloaded at www.ifsl.org.uk.
Lloyd’s
© Copyright December 2009, IFSL
www.lloyds.com
London Market Group
http://www.marketreform.co.uk Data files
Datafiles in excel format for all charts and tables published in
Office for National Statistics this report can be downloaded from the Research section of
www.statistics.gov.uk IFSL’s website www.ifsl.org.uk

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SPONSORS’ CONTACT DETAILS

Association of British Insurers British Insurance Brokers' London & International Lloyd’s
51 Gresham Street Association Insurance Brokers’ Association One Lime Street
London, EC2V 7HQ 8th Floor, John Stow House 2nd Floor London, EC3M 7HA
Tel: +44 (0)20 7600 3333 18 Bevis Marks 78 Leadenhall Street Tel: +44 (0)20 7327 1000
Fax: +44 (0)20 7696 8999 London, EC3A 7JB London, EC3A 3DH Fax: +44 (0)20 7626 2389
Web: www.abi.org.uk Tel: +44 (0)870 950 1790 Tel: +44 (0)20 7280 0150 Web: www.lloyds.com
Fax: +44 (0)20 7626 9676 Web: www.liiba.co.uk
Web: www.biba.org.uk

In partnership with:

International Financial Services,
London is a private sector organisation, with
nearly 40 years experience of promoting the
UK-based financial services industry through-
out the world.
City of London Corporation administers
and promotes the world’s leading international
finance and business centre and provides free
inward investment services.
UK Trade & Investment helps UK-based
companies succeed in international markets
and assists overseas companies to bring high
quality investment to the UK’s vibrant
economy.

This brief is based upon material in IFSL’s possession or supplied to us, which we believe to be reliable. Whilst every effort has been made to ensure its accuracy, we
cannot offer any guarantee that factual errors may not have occurred. Neither International Financial Services, London nor any officer or employee thereof accepts any
liability or responsibility for any direct or indirect damage, consequential or other loss suffered by reason of inaccuracy or incorrectness. This publication is provided to
you for information purposes and is not intended as an offer or solicitation for the purchase or sale of any financial instrument, or as the provision of financial advice.
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