With a record £3.7bn profit reported for 2006, Richard Ward has experienced a bumper first year as chief executive of Lloyd's, but as he tells Elliot Lane he is preparing for the challenges ahead
It is the morning after the night before. Lloyd's announced a record £3.7bn profit for 2006 the previous day, and after a round of press interviews and relatively favourable headlines, Richard Ward is relaxed, smiling but most of all relieved.
"It's not bad to face my first annual results where I can announce over £3bn in profit. I'm the lucky man. Even my wife said to me yesterday morning when I told her the results, that she couldn't believe how lucky I'd been for a first year."
Another Richard, Britpop luminary and ex-Verve frontman Richard Ashcroft, once sang how he was a "Lucky Man", a song reflecting how he had reformed his bad ways and moved on.
Many in the Lloyd's market, or as Lloyd's outgoing worldwide markets director Julian James would call them "bellies on the bar", feel Ward has been a great frontman for the franchisor but the real substance of the story lies in the market finally addressing its darker past and becoming more disciplined than ever.
He has also been blessed by a benign claims period during 2006, after Katrina and her little sisters ravaged the latter part of 2005.
Baptism by fire
Ward's background at the International Petroleum Exchange (IPE) gave him a baptism by fire (or should that be kerosene) into dealing with, and cajoling, a traditional market through the transition of change into a modern, technological age. Back in April 2001, a BBC reporter talked of the IPE "sending the multi-coloured jackets of the floor traders to the secondhand shop".
Under Ward's stewardship the trader was a dying breed and he fought habits and egos to bring the IPE in line with other global exchanges.
"What I have learned about the similarities and differences in this market compared to the IPE is between the broker and client.
Brokers in the oil business deal with the client, but the relationship is outside the immediate environment. In this market the relationship is between the broker and underwriter in a much more enclosed environment.
"But the only way to bring technological change is by finding the right partners. We can never, and will not, attempt to build a bespoke system again," he says, in reference to the ill-fated Kinnect project.
This is why Lloyd's has signed a licensing agreement with the reinsurance trading platform RI3K for its new Chinese reinsurance division, while Xchanging has been appointed to implement the back-office processing in English and Mandarin, using its product Genius.
Ward is keen to stress that partnerships like these, coupled with the work of the G6, will form the backbone of Lloyd's future technological developments.
"RI3K and Lloyd's have a global licence, so this means brokers can feed back into London or place business wherever. Partnerships and initiatives like this is how Lloyd's will develop as a global player," he added.
China has become the mantra within the corporation to emphasise its global aspirations against many of its detractors. Only last month one of Lloyd's most vehement critics, Robert Hiscox, gave an excoriating interview with the Mail on Sunday where he said that the Lloyd's building should be "flattened with bulldozers" as this was the only way to affect real change. He later said he had been misquoted but anyone who has spent time with him knows his feelings towards the arcane behaviour of Lloyd's.
Ward says: "Robert's views are well known and has the right to express them to whoever he wants. I do believe he has been misquoted as he and Bronek [Masojada], who recently left as our deputy chairman, have always been very supportive towards us. I just feel sorry for those Hiscox staff who work here in Lloyd's because it is embarrassing for them.
"I agree with Robert that radical change is needed and we are attempting to do it. Closing the doors of Lloyd's until the brokers and under-writers embrace technology could be the answer but I doubt it. They would just go elsewhere."
His reference here is to insurer Ace European Group's "virtual" underwriting floor which has been running for four years, though "reports are it is not quite as efficient as many first thought," says Ward.
Against the brickbats of critics there is always the shadow of Bermuda and other tax-friendly domiciles nipping at the heels of Lloyd's. When Lord Levene, Lloyd's chairman, was invited by the Chancellor Gordon Brown to join his team reviewing the competitiveness of the City last year, the market was encouraged and expectations were high that his influence may lead to a significant cut in taxation levied for Lloyd's insurers.
In last month's Budget, the Treasury announced a cut of 2% in corporation tax, to 28% from 30%. But market figures said this would do nothing to stem the flow to Bermuda and Gibraltar, only a reduction to around 20% might halt the exodus.
Was Ward disappointed the chairman failed to make a significant impact? "Anything the Treasury can, or will, do to help the City become more competitive is welcomed by us. The Conservatives made it very clear that a 3% cut in CRT would mean a £4.5bn reduction in UK revenues. The government has to take into account the impact of this loss on public spending.
"We will take what we can get," he added.
With rumours that one of Lloyd's oldest managing agents Equity Red Star will be shifting business over to its Australian parent IAG's Advantage operation in Gibraltar, Ward is sanguine to the realities of the personal lines market and company's pursuing the best deal for their clients.
"We thrive on diversity but the reality is our cost base cannot compete with Gibraltar and if motor syndicates can find a more competitive way of doing business in a highly competitive market then that is their choice," he said.
More telling is his next comment: "Lloyd's is a specialist market. And we are a wholesale mark-et not a retail market. We have placed in motion a new business plan to improve the way the mar-ket operates and we hope that this offers value."
Fortune magazine named Lloyd's 66th in its top 100 of global brands last year which was in some part due to Lloyd's global branding strategy launched three years ago. But it has parted company with US brand guru Wolf Olins, whose services are no longer required, and it seems raising its profile in China is seen as the way forward.
"AIG are making in-roads in China but Lloyd's has a higher awareness. To get the Chinese agreement signed with Tony Blair in attendance shows that Lloyd's has a major role to play in the region," says Ward.
During Ward's first year Lloyd's has acted with discipline, rejecting a number of Berm-udan start-ups for not adding value to the market, has seen Bank of America bring new institutional capital and reaped the benefit of the flexible ICA rules instigated by finance director Luke Savage. It has also reformed the broker accreditation process, offering a faster more streamlined application system and also a lighter touch approach to regulating existing brokers so not to duplicate FSA rules.
When asked what he believes he has achieved personally over the past year, Ward talks about the new culture and behaviour of the internal workings of Lloyd's. He has initiated (see box) some new staff development programmes and the 11th floor, hierarchical nature of the Lloyd's building has been swapped around.
"I would not want to be a tagged back to the floor-type manager but I get bored just sitting in my office. I have enjoyed developing the staff programmes and getting the staff to have more fun," he says.
So can the lucky man remain lucky? "We must remain cautious that the benign claims period cannot last. There is a lot of fluidity of capital but introducing the mid-year release of profits should take some of the ill-discipline out of the underwriting cycle. Many managing agents have seen their profits trapped but now these can been released to take advantage of new business if the market turns.
"I am fully aware of the talk of a softening market and as an insurer, we take premiums, but we must be seen to pay claims.
"I know I will not be announcing a £3.7bn profit again next year," he admits.
Ward can certainly talk the talk. For those who doubt he can walk the walk, he is definitely walking with his eyes wide open. IT