August 30th, 2012

Lloyd’s: History and Vision

Posted at 1:00 AM ET

Matthew Day, Senior Vice President
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Lloyd’s - A Short History

Since it was founded in 1688, Lloyd’s has played a key role within the global (re)insurance sector. The initial focus was to offer shipping and cargo insurance coverage to London merchants traveling around the globe from its original base at Edward Lloyd’s Coffee House.

Many of the Market structure foundations established early in Lloyd’s history continue to underpin its financial strength today. Its early structure included the principles of mutuality, the Central Fund and the establishment of broker networks. These core foundations helped to ensure capital efficiency and distribution channels to the various Lloyd’s syndicates.

By the late 1800s, Lloyd’s had developed into a true insurance hub. It offered marine and non-marine insurance, and covered risks around the globe, particularly in the United States. Lloyd’s growth into the United States and other overseas territories has shaped the Market into what it is today. This journey has not been without setbacks, however.Indeed, Lloyd’s future was threatened in the 1980s and early 1990s when a restructuring effort addressed years of legacy issues and culminated in the creation of Equitas to reinsure all pre-1993 liabilities. Equitas subsequently underwent a significant change by entering into an arrangement with National Indemnity Company to transfer liability from the original capital providers, known as the Names. This process was successfully concluded in 2009.

In 2011, the majority of Lloyd’s business was sourced from regions outside of the United Kingdom. With approximately 50 percent of premium coming from the United States, Canada and the rest of the Americas, the Market has been well positioned to benefit from the strong economic performance of the United States since it wrote its first US reinsurance policy some 130 years ago.

In 2012, to seek future growth opportunities, Lloyd’s outlined its growth strategy for the next period in its development with the launch of its Vision 2025 initiative.

Lloyd’s Vision 2025

At the heart of Lloyd’s new long-term strategy is the goal to evolve into a true global hub for specialized insurance and reinsurance and become the “United Nations of Insurance.” In conjunction with managing agencies and the broker community, Lloyd’s has laid out plans for achieving this goal in the Vision 2025 strategy. The following highlights summarize this strategy, which was released on May 11, 2012:

Market Structure

Lloyd’s will remain a physical market, based in London, writing international insurance and reinsurance with a focus on specialist property and casualty business that requires bespoke underwriting and broking. However, growth will now be targeted and focus particularly on the emerging global economies where growth is expected to be higher for insurance than for the gross domestic product (GDP).

Lloyd’s will maintain the overseas hubs it has already established, but its capital base will be enhanced to become more globally diverse. One particular area of focus will be overseas insurance “trade” capital and the introduction of new business and talent to the Market from regions where Lloyd’s plans to increase its market share. The global license network, which allows syndicates to conduct business in over 200 countries currently, will be expanded to mirror the Market’s expansion plans and continue to provide a key benefit for new and existing syndicates by reducing barriers to entry.

Capital

The mutual structure of Lloyd’s (including the Central Fund) will remain, with the aim of ensuring that it is a capital efficient location to write business. Furthermore, the Lloyd’s ratings issued by the international rating agencies will be managed at a level that is supportive of access to the specialized business and territories targeted in the Vision
2025 plan.

Distribution

In recognition of the important role brokers play in the efficient operation of the Market, the requirements to conduct business will not change. Lloyd’s will look to build on its relationships with the large brokers, the main producers for the Market, as well as encourage other specialist brokers, coverholders and service companies. Lloyd’s will remain focused on risk selection, offering direct (re)insurance protection rather than providing capital to commoditized markets or trading in risk-indices or insurance derivatives.

Managing Agents

Lloyd’s expects the number of large managing agents to grow within the limit of 15 percent of total capacity. Smaller managing agencies will be allowed to flourish under the new plan, and new entrants will be encouraged, particularly if they are overseas trade capital providers with an existing franchise.

The Market will aim to attract the best talent and increase its diversity by gender, age and ethnicity, increasingly mirroring the geographic diversity of the business written. It will also continue to provide central services to support face-to-face trading and claims management.

Overall, Lloyd’s Vision 2025 strategy is designed to build on the Market’s current strengths and the broader benefits of the London insurance market, including the existing talent pool, proximity to broker networks, a judicial system well suited to insurance and a convenient time zone for a global hub.

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