Lloyd's Ready To Drive Full Speed Ahead Can you imagine driving a car while keeping your eyes glued to the rearview mirror, only glancing forward every once in awhile to see what's in front of you? You could never step on the gas and speed ahead–not without risking a major accident.
Yet that is exactly what most commercial insurers are doing these days. Sure, they are glancing nervously at the challenges and opportunities ahead–trying to write terrorism coverage at a reasonable rate, increasing premiums to counterbalance poorly-producing investments, tightening coverage terms and cutting limits to make sure books are profitable.
But few are able to accelerate with any confidence, not with millions, and in some cases billions of prior-year losses in asbestos and other old claims to reserve for, and not with low returns-on-equity making new capital hard to come by.
However, underwriters at the world's oldest market–Lloyd's of London–have their eyes squarely on the road ahead. Lloyd's had its own prior-year problems to account for, but those were segregated years ago into its Equitas facility to free new players from old debts. Looking ahead, Lloyd's recently launched a reform initiative to make sure such problems never happen again, reinventing itself from top to bottom.
The process began in the mid-1990s, when Lloyd's put together its reconstruction and renewal plan to take care of old claims that had been haunting the market and scaring off new capital providers, culminating with the creation of Equitas. In the process, it reshaped its capital base from individual to corporate sources.
Then last year, Lloyd's revamped its governance structure to weed out any rogue underwriters who might sully the market's reputation. The changes center around the establishment of a franchise board to pre-screen players. This doesn't mean there will be micromanagement of individual underwriters, but it does mean they will have to present a sensible business plan and stick to it if they want to benefit from Lloyd's brand name and global licenses.
The other major change was to make the transition from an accounting system three years in arrears, to a current annual report. This should render the market far more transparent, as well as make it easier to compare Lloyd's performance with the overall industry's.
Lloyd's is determined to pull this reform program off without threatening the market's fundamental strength–its entrepreneurial drive and quick response time to market opportunities.
Lloyd's is definitely riding high, despite having absorbed a Sept. 11 loss of some $2.8 billion to date. Drawn by hard market rates, Lloyd's attracted record capital for the second straight year, at a time when many insurers are hard put to raise cash to grow while financing past underwriting sins and reporting underwhelming returns on equity.
The appointment of Lord Peter Levene of Portsoken as the new chairman of Lloyd's is in itself part of the reform process, since he is the first industry outsider to assume that post in the market's 314-year history. By choosing a chairman from outside its insulated ranks, Lloyd's is sending a message that it is no longer doing business as usual, and that all its presumptions will be challenged.
Lord Levene brings wide experience to his post, his career including stints in the government (serving in the U.K. Defense Ministry and as Lord Mayor of the City of London) as well as the private sector. Among his many posts, he was chairman of Bankers Trust International, the Docklands Light Railway Ltd. and Canary Wharf Ltd.
Lord Levenes predecessor–Sax Riley, who recently retired–already did a lot of the heavy lifting, setting into motion the many changes in Lloyd's structure and supervision.
Yet Lord Levene still has his work cut out for him. The reforms in Lloyd's governance represents an enormous change–both practical and cultural. He is the one, along with Lloyd's no-nonsense CEO Nick Prettejohn, who will have to implement the market's ambitious regulatory and accounting reforms.
When Lord Levene made his U.S. debut last month, he made it clear that Lloyd's prominent position in the American market was a big factor in the reforms Lloyd's has initiated. "While changes have taken place at the instigation of Lloyd's itself, much of the impetus to reform has come from the need to maintain our interdependency with the U.S. industry," he said, speaking before a joint meeting of the Association of Professional Insurance Women and the Society of Chartered Property Casualty Underwriters.
Lloyd's reputation was in jeopardy as it scrambled to deal with the aftermath of horrific soft market losses, but it has emerged stronger and more aggressive, with its premiere brand name remaining one of its greatest assets.
"Even my two local travel agents in Vietnam–who were once members of the Communist party, but who are now entrepreneurs–were instantly aware of what Lloyd's is and what role it performs in the world when I told them what job I held," said Lord Levene. "We're the Coca-Cola of insurance. Our global brand recognition is a priceless advantage."
He said that Lloyd's has come a long way since its coffeehouse origins, helping lead a globalization of the industry that is accelerating each year. "We still have a coffeehouse on the premises, only now its Starbucks," he quipped.
He closed with the prediction that Lloyd's is not done evolving into a modern marketplace. Indeed, he said, the specter of Lloyd's brokers "going about the market with file folders, riding elevators, and walking around to trade with people who put little stamps on pieces of paper is not the way Lloyd's is likely to continue doing business in the future."
Sam Friedman is NU's publisher and editor-in-chief. He may be reached at sfriedman@nuco.com
Reproduced from National Underwriter Edition, February 17, 2003. Copyright 2003 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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