By GRAHAM BUCK, a London-based writer covering European risk management issues
MONTE CARLO--In what has been a relatively quiet year at the annual reinsurance Rendez-Vous in Monte Carlo, some of the industry's biggest names have flown over all of their top figures and been even more proactive than usual.
Lloyd's of London has all of its senior individuals in Monaco, with Chairman Lord Peter Levene announcing that the 320-year-old insurance market intends for Asia to represent "a much more significant part of our business worldwide" in future years.
However, while Lloyd's has made no secret that it intends to derive a greater proportion of its overall revenue from outside North America, CEO Richard Ward is keen to stress the continued importance of the United States and Canada.
"We are seeking new opportunities to increase the overall amount of business that we write, but the United States will continue to be our most important market--and Canada our third biggest--which is why I spend a major part of each year in America," he told Risk & Insurance®.
"Indeed, I believe that we have just overtaken AIG as the largest surplus lines writer so we're absolutely committed to U.S. business," he said.
Having steadily restored its fortunes since the mid-1990s, Lloyd's is able to present itself as being in rude health, with the possibility of overall capacity--already at a record 17 billion pounds ($27 billion) for 2009--rising above 20 billion pounds. Meanwhile, major syndicates such as Beazley have rediscovered an appetite for the special-purpose vehicles dubbed "sidecars" that were very much in vogue post Hurricane Katrina.
The only potential clouds on the horizon result from London's inability to compete with the tax advantages of alternative locations, and the prospect that the city's status as a major global financial center may be eroded in coming years. Bermuda has attracted names such as Hiscox, which redomiciled to the island three years ago, but closer locations such as Ireland, the Netherlands and Switzerland are proving equally attractive
"It's understandable that companies such as Hiscox made the move for the benefit of shareholders, in order to maximize their tax position. However, my interest is where they actually write the business, and these companies remain committed to Lloyd's," said Ward.
"This hasn't changed, despite the redomiciling. Catlin moved to Bermuda back in 2002, but is still a major contributor. The midterm to long-term concern is whether decision making also shifts away from London," he added.
Unfortunately for Lloyd's--and U.K. business generally--the prospects of a more favorable tax regime from the British government are slim to zero. A shave in corporation tax, from 30 percent to 28 percent, was conceded in 2007, but government finances have dived so heavily into the red since that an increase in the tax burden appears inevitable.
"That being the case, Lloyd's needs to ensure that its offering is as competitive as possible, that we operate as efficiently as possible and that we have the right capital models in place," replied Ward. "Though I'd like to think that the solidity of our Central Fund and our mutuality go some way toward offsetting the tax advantages offered by other locations.
"But I do have concerns on the possibility of London's global status being threatened," he stated, "partly through the actions of regulators. Some of the statements that have been made are worrying, and there is a lack of appreciation over how much the financial sector represents a major contributor of revenue to the (U.K.) Treasury coffers.
"Politicians of all parties should recognize the contribution that the reinsurance sector makes to the economy. The industry could and should be a little more vocal in differentiating itself from the banking sector."
SUN WILL COME OUT TOMORROW
Looking to its future, Lloyd's also commissioned a strategic review earlier this year, for which it brought in Deloitte as consultant. The findings are scheduled to appear in January 2010--although, as Ward stressed, "it's safe to say that the recommendations are unlikely to include anything too radical; principally because we are performing strongly."
This is partly due to the fact that, since Ward arrived at Lloyd's in 2006, the plan he inherited from the previous regime has been regularly revamped.
"We've delivered in areas such as our performance framework, flexibility of capital and achieving a ratings upgrade," he said.
"So 2009 seemed like a good time to review what had been achieved and to carry out a stress test with the external market. We've undertaken a stakeholder exercise and talked to the market about our future direction," he explained.
Having made great strides in making the market fully electronic, with the introduction of Electronic Claims Files, accounting and settlement, the next step will be getting Lloyd's Exchange--the electronic dissemination of information--fully up and running. Ward was meeting senior representatives of Aon, Marsh and Willis in Monte Carlo ahead of a major push for the program in November.
So no prospect of the chief executive moving away from his Lime Street office just yet?
"Not at all. I still regard the job as very far from done, and there are still some major challenges to be faced," he stressed.
"I'm having too much fun to have any thoughts of moving on. It would be inconceivable to even think of working anywhere else."
Graham Buck, our London correspondent, is in Monte Carlo this week covering the Rendez-Vous de Septembre, the annual meeting between reinsurers and reinsurance brokers.
September 9, 2009
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