Mazars survey: Mood amongst Lloyd’s brokers uncertain amid downturn

Lloyd’s brokers painted a mixed picture of resignation and resilience in a survey published today by international accountancy and advisory firm Mazars.

78% of respondents expected to endure a continued softening in rates over the next 12 months, while only 18% thought they would remain the same and none believed they would harden. The classes of business considered most at risk were liability, property and reinsurance. Alongside this gloomy mood, the state of the global economy was chief amongst concerns for the development of the Lloyd’s market over the next three years. There was also overwhelming sentiment towards continued consolidation, with the vast majority (89%) of those surveyed predicting that the total number of Lloyd’s brokers will diminish in the next year. 

Despite this, 54% of respondents cited whole-team acquisitions - and 27% whole-business acquisitions – as figuring in their strategic growth plans,  while only 5% mentioned a sale and 7% a merger. Furthermore, team recruitment and searching for new markets and products were the most popular choices for supporting continued profitability, as opposed to increasing commission rates and disposing of unprofitable business segments, which were only mentioned by 7% and 10% of respondents respectively.

Impact of the credit crunch on values

The anticipated effects of the credit crunch on the value of brokers’ businesses appears somewhat uncertain: although 52% of brokers surveyed thought that the increase in the cost of borrowing and restrictions in access to funding would impact values, a higher than expected proportion (29%) thought it would not. 19% were unsure. Asked if the current high prices being achieved on the sale of brokers was affecting their medium-term growth strategy, 52% of respondents said no, whilst a third admitted they were.

Mark Grice, Mazars’ head of broking, said: “The effect of softening rates on the Lloyd’s broker market will put the smaller players under considerable profit pressure. The smaller players exposed to the US dollar are suffering because of the exchange rate and not seeing any hardening of insurance rates adds to their woes.

He continued: “Given that most respondents said their development strategies were not being influenced by the historically high prices being paid for brokers, it is interesting to see that the vast majority considered that overall number of Lloyd’s brokers would decrease: obviously they are expecting others to sell rather than themselves.”

Process reform and regulation

The brokers surveyed were overwhelmingly in favour of further process reform, over and above either cost reductions or taxation reforms but were equally divided between those who thought that process reform was moving sufficiently quickly and those who did not.

75% of respondents were in favour of the  move to principles-based regulation. However, the majority have yet to detect any evidence of a change in the FSA’s approach: only 15% said they had noticed a difference.

Mark Grice remarked: “Hopefully for the FSA, the perceived lack of change in approach is down to it still being early days in the move to the principles-based approach.”

If you would like to view the full report, please click here.

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© 2008 Mazars LLP, the UK firm of Mazars, an international advisory and accountancy group.