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With 40 pence in the pound leaking out of the London market to deliver the product, it is time for brave leadership

We’ve long argued that the London market is operating with a bloated expense base.

And we’re not the only ones. Speech after speech delivered in EC3 has discussed how London underwriting does not have the margin to sustain all of the people who have been working in EC3 for the past decade.

But – at least until very recently – the London market has largely avoided grasping the nettle by avoiding taking the most effective, but most emotionally difficult, approach: cutting jobs.

Unlike other parts of the City of London, heavily affected by the financial crisis of 2007/8 and having to make tough decisions early on, (re)insurers in EC3 have instead seen their expense base enlarge year on year – despite an ever-softening rate environment and the leaking away of business to overseas hubs.

Other areas of (re)insurance have taken the tough decision to let people go early. Large, global carriers such as Swiss Re and Munich Re have both undergone significant cost-cutting exercises, in a growing sign that the wider reinsurance market is starting to get serious about addressing its expense issues.

Global composites have also swung the axe – most notably at AIG, where the headcount fell from 66,400 in 2015 to just under 50,000 in 2017.

The big brokers have similarly been cutting their cloth, with Marsh currently undergoing a “streamlining” exercise designed to “de-layer” the firm by cutting out middle management roles.

But the London market headcount remained relatively untouched. Until now, that is.

MS Amlin has grabbed the most headlines in recent months, with a steady stream of senior and junior departures, alongside various restructures, including the closure of its India branch and the withdrawal from UK household.

And Tokio Marine Kiln put a number of staff on notice last week, including several property, liability and construction underwriters.

The realisation is finally sinking in that London underwriting does not have the margin to sustain all of the people who work in EC3 – and, as such, there has to be shakeout in headcount.

The question now is how to tackle the issue while ensuring the minimum disruption to the business.

Forced redundancies are an ugly, painful thing. But voluntary redundancies may not result in the right people going.

But we are where we are. Attempts to improve underwriting, tweak technology and innovate your way out of costs aren’t doing enough, fast enough.

With 40 pence in the pound leaking out of the London market to deliver the product, it is time for brave leadership.

MS Amlin and TMK may be among the first, but they definitely won’t be the last. At long last, and as sad as it is for those affected, the axeman really will cometh.

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