Solvency II pressures could mean Lloyd’s is reluctant to take on new syndicates
Aviva is expected to make a decision at the end of the summer over whether to set up a Lloyd’s box to complement its corporate risks team.
Aviva Corporate and Specialty Risk (ACSR) managing director David Hall is carrying out a review of the direction of the unit after two years in operation.
The biggest decision he faces is whether to take ACSR from its current position of underwriting UK-domiciled firms with international offices and subsidiaries, to a truly global underwriter taking on risks from foreign companies.
Aviva has the infrastructure to underwrite globally without the help of Lloyd’s and could trade from the corporate risks headquarters in its London St Helen’s office.
But a combination of Aviva’s growing global brand and Lloyd’s unparalleled international reputation and quick access to global markets could prove irresistible.
Aviva has been giving off signals to the London market that it intends to take the Lloyd’s route, which could be bankrolled using part of the £1bn netted from the RAC sale to private equity house Carlyle Group.
Shore Capital analyst Eamonn Flanagan said the move may raise eyebrows, as Aviva exited Lloyd’s in 2000 when it sold Marlborough Underwriting Agency to Warren Buffett’s
Berkshire Hathaway Group, having struggled with a rising tide of claims.
Flanagan said: “[A Lloyd’s entry] wouldn’t surprise us. At its last presentation, Aviva stressed it was very keen to get into the London market.
“If it wants to try to play in the London market, there is no better place to do it than Lloyd’s. If that is its strategy, it should go for it. But it will raise one or two eyebrows.”
One challenge for Aviva is that Lloyd’s may be reluctant to accept new syndicates, aside from exceptional cases as it is intent on getting existing syndicates up to speed with Solvency II.
Randall & Quilter, which runs a turnkey operation helping firms to set up syndicates, said in its 2010 results that Solvency II and weak underwriting rates had resulted in an environment that was “not particularly conducive to launching new Lloyd’s syndicates”.
Despite these obstacles, Aviva will be buoyed by the initial success of its corporate arm.
According to the 2010 annual report, the corporate risks unit pulled in £50m new gross written premium last year at an impressive combined operating ratio of 81%.
A move to Lloyd’s also fits in with group chief executive Andrew Moss’s strategy of concentrating on core markets. Aviva has already sold RAC and Delta Lloyd so it can focus on key markets in a dozen countries.
A Lloyd’s operation would allow Aviva to flex its muscles in its chosen locations, while dipping in and out on a much broader spread of international markets.
Aviva is likely to steer away from catastrophe business, instead concentrating on financial institutions, construction, motor, property and specialist lines.
Having assembled a team of 40 staff at Aviva’s corporate risks headquarters in London, there are enough seasoned heads to take the insurer global.
Hall was previously Zurich’s chief executive of global corporate UK business; Dipak Warren joined Aviva in September last year as corporate risk solutions director, having established a name for herself at Mitsui Sumitomo Insurance; and highly rated Mitsui colleague John Tiernan also jumped ship to become chief underwriting officer.