Despite a string of loss-making years, the annual conference of the Association of Lloyd's Members found much to applaud in the corporation's service and willingness to change. Claire Hills reports.

Change is on the cards at 30 Lime Street. The rocky progress of the insurance market over the past few years has culminated in disastrous financial results for Lloyd's. Lloyd's Names – now known as members – suffered particularly badly, and their numbers have declined in the market from 4,500 in 1999 to 3,300 in 2000.

A market-wide loss of 1.8% was recorded in the Association of Lloyd's Members (ALM) report, Lloyd's Market Results and Prospects, 2000. ALM members believe that more members are needed in order to safeguard the future of the 312-year-old corporation. “2000 will be the transitional year,” says the report. Only time will tell.

The ALM national conference took place last Friday at the Queen Elizabeth Conference Centre in Westminster. It boasted an array of high-profile speakers, and each outlined their views on the problems Lloyd's now faces, and offered positive strategies for its future success.

Michael Smith, head of insurance at Titmuss Sainer Dechert, said: “Names are mortal. The Names reservoir, like any reservoir, needs to be replenished. How many Names will Lloyd's have in 2001? I wish we could point convincingly to a turning point.”

In order to attract new investors Lloyd's will need to take steps to become more attractive. Lloyd's chief executive Nick Prettejohn said: “Change needs to happen more profoundly,

and quickly. We have been through a severe down cycle within our industry.” But he added more optimistically: “Building blocks have

been put in place for real change in the way that we do business.”

Natural disasters

Lloyd's seems to have a lot of ground to cover. Each of the past three years has seen the market make a loss. The causes of the down-cycle are plentiful – from Hurricane Andrew back in 1992, through to the severe storms of 1999.

But natural disasters are not the only things seen as responsible for the market's current situation. Dr Paul Kelly, ALM director, puts some of the blame on poor forecasting: “For some of us, the most worrying thing we have seen is the failure of forecasting.” Had this not been the case, it is arguable that losses would not have been so great and Lloyd's would be in a stronger position today.

Michael Bright, chairman of Independent Insurance, who is himself a Lloyd's member, cited poor underwriting as one reason why Lloyd's has suffered: “Good underwriting creates good, positive cash flow,” he said. “Underwriting for cash creates large losses.” He also spoke of the huge variation in the performance of syndicates: “The performance at the top end is increasingly under pressure.”

Bright's contention is that the key to progress is either to improve vastly or to abolish the worst of the syndicates, allowing the rest to flourish.

It is possible that these underperforming syndicates have been allowed to continue for so long because Lloyd's has become set in its ways, Bright said.

“The arrogance that was in Lloyd's ten years ago, I am afraid is still here,” he said. If there is truth in this, it would seem that a crucial need for Lloyd's is modernisation.

A key issue today is the growing use of the internet worldwide. Without the facility to conduct business online, Lloyd's may well lose out on potential business.

Smith of Titmuss said: “The prospect of insurance business being conducted on a borderless internet exchange to which time and distance is irrelevant is going to challenge the insurance market (and therefore Lloyd's) to its limits.”

He added: “There are key issues of harmonisation, legality, money movement, security, confidentiality, transaction integrity, transparency, disclosure and the like. This goes light years beyond relaxing distribution channels and methods and is something at which Lloyd's is looking closely.”

Should Lloyd's begin to trade online, he believes, it is almost sure to attract new investors.

Whether trading over the internet, the telephone, or face to face, John Cooney, president and chief executive officer of US insurance company Cooney, Rikard and Curtin (CRC), declared that customer service is the most important factor in attracting new business. He added that, fortunately for Lloyd's, customer service is one of the strengths of the corporation's offering.

His speech was entitled “Should the American Independent Broker use Lloyd's?”, and in it he listed the “new Lloyd's attractiveness to the market”. Positive factors included:

  • Some of the best security generally available today.
  • An encouraging responsiveness to consumer needs.
  • Resources concentrated on key areas where value is realised.
  • The great strides that are being made in efficient operations.

    He concluded: “All the good intentions and romanticism in the world will never substitute for being responsive to the client – filling his needs, while providing a true sense of peace

    in his balance sheet. As long as Lloyd's will make the investment, the public will seek the unique security that only the members of Lloyd's can offer.”

    Need for change

    In conclusion, the speakers felt, the future does not appear to be all bleak. Lloyd's may have a dented reputation, but its high levels of customer service should stand it in good stead.

    Bright recognised the need to change. He said: “I believe in Lloyd's, I don't believe in this Lloyd's.” Despite this, he claimed the corporation had a singular merit: “We have never as a market gone into liquidation, which no other market in the world can say.”

    Bill Rendall, underwriter on syndicate 510, thought Lloyd's has dealt with hard times well. He said: “Despite the appalling catalogue of catastrophe insurance losses during the year 2000, I believe that Lloyd's has emerged comparatively unscathed.”

    Addressing the members, he continued: “There is a tone of certainty about the advent of a hard market, but I would urge caution and that you should make sure that there really is a substantial upturn and a really hard market. Then we will certainly need lots of capital in whatever form it is available.”

    However, Paul Upton, an active underwriter since January 1995, predicted that the road ahead for Lloyd's would be painful. His contribution summed up what the journey would involve: “A grubby, exhausting climb to the top. And beware the slide down the other side, because I fear there may fewer aids to guide us through cycles in the future.”

    Table 1: Lloyd's changing capital base 1993-2000
      1993 1994 1995 1996 1997 1998 1999 2000
    Number of unlimited liability names 19,537 17,526 14,744 12,738 9,958 6,825 4,503 3,317
    Unlimited liability 100% 86% 77% 70% 55% 40% 27% 20%
    Limited liability 0% 0% 0% 0% 1% 5% 7% 13%
    Total Names 100% 86% 77% 70% 56% 45% 34% 33%
    Spread funds 0% 14% 19% 21% 24% 25% 20% n/a
    Dedicated 0% 0% 4% 9% 20% 30% 46% n/a
    Total corporates 0% 14% 21% 30% 44% 55% 66% 67%
    Grand total 100% 100% 100% 100% 100% 100% 100% 100%