Lohmann Sees Lloyd's Easing Out Of Reinsurance
Monte Carlo
Lloyds will evolve back to being a specialist insurance market and out of reinsurance, except perhaps for the specialty areas of aviation and marine, according to Dirk Lohmann, group chief executive officer for Converium Ltd., the Zurich-based reinsurer.
Sept. 11 exposed Lloyds for what it is–a grouping of small- and medium-sized capitalized entities that rely on reinsurance to gear up their balance sheets, he said during a breakfast speech at the reinsurance Rendez-Vous de Septembre.
"That works if you write insurance because there is a ready and willing market out there to provide you with excess-of-loss reinsurance on an insurance book, but there isnt a ready and willing retro market," he said during an interview.
Sept. 11 showed the gross funding that Lloyds had to put up for U.S. liabilities, but their retrocessionaires dont have to put the cash up, Mr. Lohmann confirmed, adding: "They got caught in a squeeze." Such conflicts led to the decisions by XL and ACE to take their reinsurance activities out of Lloyds and put them back into Bermuda, he said.
"Lloyds offers you the licenses to transact insurance," he said. "Reinsurance is a highly deregulated business. You dont need the licenses."
Commenting on the new Bermuda startups, Mr. Lohmann said they will have to decide on whether to be insurers or reinsurers. "There are different competencies that you need to run an insurance business and a reinsurance business," he said.
The composite syndicates at Lloyds, "those that did everything, have gotten killed," he added. "Those that stuck to their knitting and are specialists are still in business today."
On a macro-industry level, Mr. Lohmann said the integration of banks, insurers and asset managers has not been as successful as some would have hoped.
"It sounds good on paper, but I dont think that its really worked very efficiently," he said. "There are some areas that have worked very efficiently. Distribution of savings products needing insurance forms or other forms through banks on the Continent have been very successful." However, there are cultural limitations because "you cant transport it across borders and cultures," he said.
The U.S. repeal of Glass-Steagall in 1999 enabled Citigroup to consummate its merger with Travelers, which led to further expectations about financial consolidation, Mr. Lohmann noted. "The perceived benefit of this integration was that there were going to be all these wonderful synergies; we were going to be able to do cross-selling," he said.
However, the integration and the synergies didnt come, he added. "The whole issue of legacy systems was underestimated. Then you have the issue of controls and processes. There is a huge difference between banking, financial services, asset management and insurance, and the same is true for reinsurance," he said.
"And you have the cultural clash. I know about that because I worked with an organization that tried to do this and we never seemed to get the asset management business integrated into [Zurich Financial Services]," he said.
Mr. Lohmann noted there has been a return to deconsolidation, with the recent spin-off of Travelers from Citibank.
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, September 16, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
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