On the Box...
Posted by Rebecca Hope | Graduate blog on Thursday 08 December 2011, 9:47AM
One of the great things about working at Lloyd’s is walking through the Underwriting Room and feeling the buzz.
Recently, I spent the morning shadowing a terrorism underwriter on the Antares box. During my internship I had spent a little time before in The Room, so I was keen to expand my experience on the underwriting side. It is only through sitting on the box that you gain the unique insight into the different individuals involved in placing a risk at Lloyd's.
The many personalities in The Room are extremely diverse. There is a lot of ingenuity from both sides that go into the placing of a risk. The underwriter tends to be more resourceful and intuitive, whereas the salesmanship and flamboyance of the Brokers can be a sight to behold!
This leads to an interesting dynamic during the negotiation process for the placement of each and every risk. It is great to see the face-to-face business transactions between the individual underwriters and brokers and the close relationships within the market are hugely valuable. I was amazed to see the variety of risks placed even in such a short space of time, the pick of the bunch being an Asian theme park!
Unlike other insurance centres, Lloyd’s is typically placed on a subscription basis, whereby each underwriter takes a proportion of the risk. This provides a spread of capital base, as well as the ability to place large and often complicated risks under one roof. Now I have a better understanding of what an underwriter considers when deciding whether to write a risk.
Firstly, risk profile. What is the location? Does this territory have high exposures to terrorism? What security measures are in place? Are members of the public able to enter and exit freely? Is it situated near a high profile building or place?
Secondly, implications for the portfolio mix. This is essentially how much similar business and risk is written in one territory. Part of this process is known as aggregate management, whereby the underwriter monitors existing exposures and the total sum insured for each line. He will use this information when considering if his current portfolio of risks is capable of carrying this new proposed business.
Finally, but most importantly price. Is the proposed price adequate for the risk and territories that it covers? Here, the underwriter uses all of his expertise and historical knowledge to determine the premium.
I came away from my morning on the box enthused. To think that Lloyd's has been trading on this basis for over 300 years shows that this sometimes quirky market place is clearly one of the most effective places to transact specialist insurance and reinsurance business.
I like this place…