The ability to respond quickly to market developments is the key to commercial success. Commercial pressures will increasingly force Lloyd's Agencies to develop a more appropriate capital base in order to remain competitive in today's fast changing global market.
Lloyd's took a step forward in this process when it allowed the formation of Integrated Lloyd's Vehicles (ILVs), allowing existing managing agencies to purchase capacity on their own syndicate, replacing (or displacing) capital supplied by third parties (Names).
Some managing agents such as Cox, Goshawk and Venton (now Alleghany) have now replaced 100% of their third party capacity with capital provided from their parent companies and many more agencies have made substantial steps towards 100% corporate support. These include Catlin, ACE and TerraNova (now Markel).
In addition to the existing agencies, several new agencies have been formed to take advantage of this structure. These include Euclidian, Danish RE and Mitsui. The Syndicates managed by these new operations have no liabilities to past third party capital providers and have continuous capital provided by their parent company.
The Council of Lloyd's have recently given their support to streamline procedures where possible for ILVs and particularly these Single Member Corporate Syndicates (SMCS). The Integrated Agency Forum (IAF) has been set up to promote the interests of all ILVs, but particularly this fast growing group.
The IAF believes that the structure of an SMCS, which has no conflict of interest between Agency and Member, should enable these operations to be more responsive to market developments, if given a more flexible regulatory environment.
The Forum, which is chaired by Euclidian and includes representatives from Danish Re, Alleghany, Apollo, Newline and PX Re, is working with the Lloyd's regulatory body to determine the extent of changes that can be made to certain reporting and regulatory requirements, which we feel are not appropriate or not necessary for ILVs with Single Member Corporate Syndicates.
There are a number of issues being addressed by the Forum. In the first instances, these are the timing, authorisation and reporting processes for increases in capacity, fees and results, reserving and solvency, distribution and Funds at Lloyd's.
While we accept entirely the need for the Lloyd's community to be regulated with one set of common rules to protect the interests of a mutual society, we feel strongly that, with many Names already converted to limited liability through ILVs and many more to come, the future expansion of Lloyd's will be through ILVs, particularly in their purest form as Single Member Corporate Syndicates.
The IAF believe that as more and more Names, through shareholdings in limited liability vehicles, align their interests with other corporate capital that Lloyd's constructive move towards a more proactive and flexible approach from its regulatory body will give a lot of confidence to present and potential future capital providers. The capital providers, including individual Names, look for innovative solutions not only from the underwriters that they support, but from the market itself.