PB Week: Market expert says insurance brokers could thrive in downturn

Speaking at the PB Management Event in Bolton, Allen told an audience of broker managers: "In an economic downturn the price of risk goes up and clients worry about downsides [to their businesses]. I remember broking in the seventies and insurance brokers thrived. Reduced investment fund returns [for insurers], will help the market harden. Also rising inflation helps brokers as asset values rise." However, he cautioned that a hard market was not inevitable: "There is excess capital to be squeezed out so there will also need to be catastrophes to move prices, and if they occur it could be difficult for reinsurers to recapitalise in the current environment."

Evidence for the belief in the future success of broking despite the difficult financial climate is the news that Oval has had a £115m refinancing from four leading UK banks to support its acquisition drive and the Oval's purchase of Liverpool-based Powell Insurance Brokers (with £16m GWP) and Wrexham-based Williams Insurance Brokers (£4m GWP). The moves follow a summer suspension of acquisitions. It appears consolidation is set to continue in the broking space.

There are still two PB Management Events next week at London and Weston-super-Mare. Sign up now to hear the latest market opinions, network with peers and take part in our interactive voting and panel discussion.

Iceland melting

Here are a few snippets from the continuing financial meltdown:

The financial crisis has beset an entire nation with Iceland suspending trading on its stock exchange for two days and taking control of its largest bank Kaupthing. How a country with a population of 300,000 became such a heavyweight player on the international financial scene will no doubt be the subject of many books.

Meanwhile, AIG has sought an extra $37.8bn loan from the Fed to shore up the liquidity in its securities lending business. In return AIG will provide the Fed with fixed-income securities from its life insurance subsidiaries. The numbers are simply staggering.

Aviva has sought to reassure investors after a report suggested stock market declines had decreased its capital base by up to 30% in the first half of the year. The insurance and investment group said that increased hedging would secure its capital against any further falls and in fact surplus regulatory capital had risen to £1.9bn at the end of September from £1.8bn three months earlier.

At least following Alistair Darling's great banking bail out things seemed to have calmed down for now, but don't hold your breath!

BREAKING NEWS: The London Market insurance Brokers' Committee (LMBC) has decided to launch its own association away from the British Insurance Brokers' Association "because over time the interests of the retail insurance broker and that of the London market broker have become increasingly diverse." A new trade association called LIIBA will be for all London and International Insurance and Reinsurance brokers. The board committee has representatives from Aon, Benfield, Cooper Gay, RFIB, AJ Gallagher, Glencairn, HSBC Insurance Brokers, JLT Risk Solutions, Lockton, Marsh, Miller, SBJ Group, THB and Willis. A letter was sent to all members dated 7 October and the LMBC is hoping for a positive response. The association is expected to start formally in January 2009. It is expected that many brokers will be members of both BIBA and LIIBA.

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