MONTE CARLO--With a softening market cycle well underway and underwriting discipline being the mantra of ratings agencies, Lloyd's is calling for the same in its markets, its chief executive said.

"We see a softening cycle, for 2008," Richard Ward told National Underwriter here. "For us the important thing is that we maintain underwriting discipline--write the right business at the right price and that we don't chase market share."

Mr. Ward also commented on the strength of Lloyd's, reflected in strong ratings and propelled by the March reinsurance transaction between Equitas, Lloyd's runoff entity for asbestos and environmental claims, and Berkshire Hathaway subsidiary National Indemnity Corp. National Indemnity now reinsures all of Equitas' liabilities and provides a further $5.7 billion of reinsurance cover to Equitas.

"We had very strong financial results in 2006," said Mr. Ward, adding that Lloyd's continues to build its brand and expand distribution in countries such as China and Singapore.

"So, while it's a strong position to be in, we need to be cautious on the softening side," he said, noting that Lloyd's is "hearing encouraging noises" from its market that "they're going to cut back activity for '08." He added, "I wouldn't be surprised if we see a reduction in premium income."

Mr. Ward explained that this wouldn't necessarily be reflected in capacity numbers because "capacity is future expectation of what we might write; it's not what we actually do write. Most people set their capacity numbers high."

Since utilization capacity is always less than overall capacity, he said, "I would expect premium income to be down for 2008 as we maintain discipline and don't chase unprofitable business."

Mr. Ward added that he will be curious to see how market conditions are responded to.

"The insurance business is an interesting business," he said. "I come from an exchange world, where it's all about growth, growth, growth and volumes, and one year has to be up on the previous year."

Before joining Lloyd's, Mr. Ward served as CEO for London-based International Petroleum Exchange. "Generally we delivered 50 percent growth year-on-year in volumes, and therefore in revenues," he said.

The insurance industry, however, must respond to market conditions, he noted. "We shouldn't expect to grow into a softening market," he advised. "Grow into a hardening market; shrink into a softening market."

Reacting to talk here about the strength and capacity of the Bermuda markets, Mr. Ward said he welcomes the competition.

"Competition is good for business," he said. "It encourages you to do your business more efficiently and effectively." He added that the rise of Bermuda "has encouraged the London market to look more closely at how it processes its business."

Mr. Ward said part of the momentum behind Lloyd's initiative to transform the market with technology has been "driven by the perceived threat of competition." He said he sees the Bermuda market as another market, "along with the U.S., Dublin, Dubai and the Far East."

He also acknowledged that Bermuda is a very important market for Lloyd's, "because we both compete with Bermuda and complement Bermuda. A lot of our investors come out of Bermuda." In fact, he noted, Validus and Ariel, to name two, have recently bought into the Lloyd's market place.

Mr. Ward observed that Bermuda is well positioned to service the U.S. market, while Lloyd's is positioned to service the global markets as well as the U.S. "We offer a very diverse book of business--a specialist book of business," he said. "That's where we have our strengths, which will insure that we continue to get the right business flowing into the Lloyd's marketplace."

China, another growth area for Lloyd's, is "extraordinary, and Lloyd's needs a presence there," he said.

The China office was opened in April of this year, a culmination of six or seven years of development work.

With a license to operate in China and an office there, Lloyd's presence is being established, Mr. Ward said. Four managing agents are now operating out of China: Caitlin, CV Star, Travelers and Ace Tempest Re.

Mr. Ward said that results from the China operation may be a long time coming. "This is a new business venture for us. So it will take a while to build a presence in the local market, to get acceptance from the local insurers, and to develop those business relationships that we need for that business to ultimately flow through that entity."

He added, "It's a long-term investment, so we're optimistic about the China venture--but not in the short term."

Special Reports /

Lloyd's Urges Discipline In Underwriting

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