Annual results: Richard Ward Q&A

Following the launch of Lloyd's annual results, lloyds.com talks to CEO Richard Ward.

Q. How did Lloyd’s perform in 2009?
Today, Lloyd's reported a pre-tax profit of £3.9bn for 2009: a record result. Despite the economic uncertainty, Lloyd's investments returned £1,769m - a return of 3.9% - while our central assets have grown to £2,084 million. We also remain in good shape competitively, with a combined ratio of 86.1% which compares well with other insurance markets.

View full details of the results and the 2009 Annual Report.

Q. Why was Lloyd’s so successful in 2009?

A. Our success is built on a resolute focus on underwriting discipline and risk management, coupled with a strong balance sheet and a conservative investment strategy. In essence, we have skilled underwriters and a prudent approach to managing our capital. This meant that during testing times for the financial services industry, we continued to be a stable partner for businesses seeking to manage their risks. Although, of course, the market benefited in large measure from a limited number of major catastrophes – particularly, a relatively inactive hurricane season.

Q. How was Lloyd’s performance affected by the wider economic environment?
A. The stabilising of worldwide financial markets certainly benefited Lloyd’s and the insurance industry as a whole. There were few, if any, significant failures among insurance businesses in the year. Insurers whose balance sheets were weakened by the financial turmoil saw their capital levels largely replenished as confidence was restored and stock market values increased. That said, our outlook for 2009 was dominated by concerns about the impact of the financial crisis and this will remain the case during 2010.

Q. How do you plan to build on the success of 2009?

A. Our model, as a subscription market backed by a layer of mutual security, is unique and it is serving us and the customer well. This will continue to be the basis for building on our success. .At the start of this year, we launched Lloyd’s Strategy 2010-12, which followed extensive consultation with the market and a considerable data analysis exercise.

While our vision – to be the market of choice for insurance and reinsurance buyers and sellers to access and trade specialist property and casualty risks– remains unchanged, the Strategy provides clarity of direction. The market’s strategic priorities for the next three years are: to maintain and develop the attractiveness of the market and a resolute focus on underwriting discipline and risk management.

Q. What are the challenges you face in 2010?

A. The market faces five strategic challenges in 2010. First, we must maintain underwriting discipline. Market rates are low in many different classes of business and we need to keep clear sight of the need to write profitable business. Second, we must maintain London’s position as the leading centre for specialist insurance and reinsurance. Third, we must concentrate on how businesses can access the market in the face of a changing distribution landscape. Fourth, we need to ensure that Lloyd’s stays attractive compared to other markets and, finally, we must protect our capital, licences and ratings amidst a changing regulatory landscape.

Q. How do you intend to remain the market of choice?

A. We will remain the market of choice by continuing to deliver bespoke risk management solutions along with a better, faster service to our clients. We need to make it easier to do business with Lloyd’s – ensuring information flows freely around the marketplace and helping brokers to bring business to London. In addition, we are looking at how we can work with local markets to source business. We will keep a close eye on the market’s geographic reach and product diversification with the aim of improving our overall risk profile. The Corporation will build on Lloyd’s strong reputation for fair and efficient claims handling through the Claims Transformation project. This work began in 2009 and a primary aim is to improve the speed of claims processing. We are also helping more market participants make use of The Exchange, which allows them to connect with one another via a simple messaging hub that ensures that we are all using core standards. And we will continue to invest in our main asset – our people – developing skills and talent across the Lloyd’s market.

Q. How is Lloyd’s progressing with implementing Solvency II?

A. This is a key priority for the corporation in 2010. Our aim is to implement it in a way that protects, and where possible, enhances Lloyd’s capital structure and efficiency. We are working closely with the FSA to gain approval for Lloyd’s internal model.

Q. Will Lloyd’s remain a London-based international market?

A. Yes. The clustering of underwriting, claims, broking and other correlated skills makes London the pre-eminent centre for specialist insurance and reinsurance business. But we cannot be complacent and the market, both as a whole and individually, must work to protect London’s position.

Q. What are your priorities for 2010?

A. The Corporation will concentrate on five areas. Unsurprisingly, performance management will remain a top priority, particularly as we expect a challenging year in 2010 given softening rates. We will also drive through reforms on claims handling. We will push for a higher usage of The Exchange and work with the broker community to look at how we can ensure businesses can access the market – but without compromising key controls. And of course, we will also need to work hard on
Solvency II.

The delivery of this Strategy will require a strong partnership between the Corporation, the managing agents and the brokers working in the Market. Only by working together, will we maintain our position as the market of choice in helping businesses to manage their risks. Having seen the partnerships and unity of purpose across Lloyd’s, I am confident that we will achieve this.

To find out more click to watch our interview with Richard Ward.