Tom Bolt: Trial by fire

Tell me about some of the challenges facing insurers in 2011 – how important is it for syndicates to focus on underwriting discipline?

Capital is up materially. In the first half of the year I’ve seen statistics which show a 6% increase in capital in the insurance market. The underlying economy – at least in the West – seems to be smaller and therefore there’s less business. Some underwriters have commented that it’s an unusual time where even though prices are going down a little, the original insureds are keeping bigger retentions and buying less or differently.

So in your recipe for what 2011 looks like you have a greater amount of capital trying to be serviced, a smaller amount of demand in terms of less insurance and reinsurance being purchased, a few more market participants depending on which part of the market you’re talking about, and most importantly, very little investment return to speak of. There’s not much room to take care of things other than to get it right on underwriting. You could hope for luck but the smarter underwriters will be managing their books down.

We’ve looked at the top ten and the bottom ten syndicates over the past years since 1993. The key difference is that in the soft years 1998 to 2001, the top ten syndicates reduced their participation in the market. And in the boom years post 9/11 they really pushed it up and wrote a lot in the market. The bottom ten seem to have had a fairly straight participation all the way through and it seems to have affected their results. That’s a fairly compelling message when you’re considering how you address the market in 2011 as the various segments get softer and softer. 

Richard Ward has described you as “the enforcer”, how do you see your role?

It beats “Mr Motivator”! We have a role that’s unusual among markets. It’s rare that a market would group together and decide to have a franchise system – a way of setting rules for yourself. In order to make the rules set out by the Franchise Board effective, you actually have to have a group of people to implement them. So we have a Directorate which implements the rules and I’m in charge of that.

In simple terms, each year everybody has to give us a business plan which tells us what they think they’ll do in the coming year and it’s our job to hold that mirror up to them – the mirror of their own business plan – and make sure they’re doing what they said they would do. If they vary from what they said they would do, that’s fine, but we at least need to make sure we understand why the variance is there and that the things they’re varying don’t require more capital to be put up. 

Business continued to be attracted to Lloyd’s in 2010 – how important is it to ensure newcomers bring something fresh to the table?

The attractiveness of Lloyd’s rating and the platform, and the beneficial capital structure we have means participating on the platform is of great interest to a lot of people.

But we want to make sure that if you come in, you bring something to the party.

The benefits to the people coming in are pretty clear. The benefits to the franchise are not always clear and in a softening cycle such as the one we’re in, it has to be even more demonstrably clear given the pressures on business plans. If you have an existing book of business that’s different and brings something new to Lloyd’s then there’s something to talk about. But if all you want to do is have a “me-too” operation then in this type of market environment you’re going to have to be aggressive on price, broaden your terms or pay more on commission.  This means it’s unlikely you can give us a business plan which indicates you expect to make a profit. If you can’t do that, then we can’t give you an approval.

You recently gave a speech laying out your vision for claims – what are some of the key aspects of achieving this vision?

We have an initiative called the Claims Transformation Programme, and one of its first parts is the Claims Transformation Pilot. Here we picked three classes of business and began to handle those claims in a slightly different way. Key to that premise is that the managing agents want choice so we’re endeavouring to create a world where they can have choice. There will be a road map that we’ll put out in the first quarter for how we’ll take that forward given the information we have, which so far has been very positive in terms of improvement of speed and no diminution of quality.

How do you remember 2010?

It went by really quickly! I had a great transition from Rolf [Tolle]. He did a lot of things over the last seven years that have made it possible to take some of those things to the next step. So we’ve been trying to pursue an evolutionary rather than a revolutionary approach. Many of the things we’re now able to give the managing agents feedback on wouldn’t have been possible three years ago but we now have a breadth, depth and quality of information that we can use for analysis and also to give feedback to the market.

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