Five members of the Lloyd’s Executive Team cast their minds back over 2014, and look forward to 2015 to explore prevailing issues for Lloyd’s, and for the insurance industry.

Our positive experience in recent years has made it possible to focus on experience versus exposure. With portions of the world economy on the rebound, market members will ignore increasing exposures at their peril. Market Oversight is one of the eight objectives of our Vision 2025 plan. It means acting with discipline as we pursue our performance management, risk management and capital setting activities; it means balancing realism with optimism.

Pressures mounted during 2014. An extraordinary amount of capital continued to flow into global markets and low investment rates persisted with virtually no investment income. We saw increasing concentration in our distribution channels and difficulties within broker business models that had a knock-on effect on the Corporation’s relationships. We are absolutely committed to working with brokers to identify better ways of helping them service their business without overburdening underwriters on cost.

We kept an eye on opportunities for thoughtful innovation and investigated opportunities in emerging risk as well as in emerging territories. An example of this has been the increasing involvement of Lloyd’s in cyber insurance. With all great opportunities come great threats. The importance of maintaining our understanding of aggregate exposures in this risk class cannot be overstated. As the world continues to shift and change we hope that by staying ahead of and involved in new risk categories Lloyd’s will retain its role as the market-leading solutions provider, as has been the case for so many hundreds of years.

One of the most courageous things we can do in this current macro environment is to find the freedom to say ‘no’ where appropriate. To examine a risk and turn it down in a competitive market takes some grit. In the final third of 2014 the difficulty of navigating a softening market increased with growing pressure on underwriters to pick their spots. This meant fully appreciating and understanding the concessions being given and having the guts to walk away if necessary. Many syndicates are doing this, but the market’s perseverance in sensibly addressing these pressures will be key to achieving a good result in 2015.

We will keep looking at ways to make the market more effective. During 2014 we stepped up our focus on wordings. The Lloyd’s market issues over 177,000 contracts a year. We need to be confident of the implications and meanings of the wordings used. Together with the Lloyd’s Market Association, the Corporation has begun to take a number of steps to improve the quality of wordings in the market. The market has weathered soft markets and difficult times before. The maintenance of a disciplined approach, making commercial concessions only where sensible, will separate the winners from the losers as we go forward.


It makes me think of frogs sitting comfortably in what they suppose is a warm bath, but is actually a pot on top of a hot stove, slowly coming to the boil. By the time we realise there is a problem it could be too late. By then the best we can expect is consolidation and the worst, an irreversible decline of market share.

There is clear value in clusters of market specialism delivering benefits greater than the sum of their parts as noted by the recent London Market Group London Matters report. If we can be clear about what drives individual competitive advantage in our market, and if we can be equally clear about what will bring value to the cluster but not the individual organisation, we can demonstrate the benefits of market modernisation and shared global services.

What has not been done effectively to date is to demonstrate these benefits to the market. If we are to be successful, we must articulate an operational vision at a level of detail that CEOs and boards can clearly understand. We must define the changes to be made by the market and individual firms, and when. Only then can plans be effectively implemented and the transformations we require take place.

We are currently in the process of building this vision for the London Market and for Lloyd’s global operations in time for organisations to include required actions in their plans for 2016 and beyond. In 2015, our focus will be on the implementation of the market modernisation vision and plan.This will include:

  • Delivering and testing the base process and technology functionality for the Central Services Refresh Programme in preparation for roll out in 2016.
  • Working with the market to implement electronic placement.
  • Beginning to build data management capability for our global markets.
  • Agreeing and starting to create global shared service capability as required by our managing agents.
  • Reviewing and addressing key areas of process efficiency within the Corporation.
  • Delivering the information technology and property requirements for the market in London and globally.

This modernisation programme is imperative for the next 300 years of Lloyd’s success. We cannot wait for a burning platform that forces us to act – for a disruptor to come in and show us how it should be done. We need to work together to change the way we operate now.


This task has been made increasingly difficult by the regulatory environment that has developed post the global financial crisis.

Like it or not a break down in trust between the financial services industry and its regulators has caused the regulatory pendulum to swing too far, heralding a significant rebasing of regulatory expectations. We have also witnessed a growing lack of trust between regulators. Just as the insurance and reinsurance industry becomes more global and more integrated, regulatory frameworks are edging further towards the regional and the local. Inevitably, this creates duplication of effort, friction and cost.

This trend is an increasing challenge for the global reinsurance industry where, for example, regulatory measures to Balkanise capital risk hamper the role of global reinsurers to absorb catastrophic losses and in turn to de-risk national economies.

Lloyd’s presents a unique value proposition to its global client base - a specialist, subscription market with the capacity and expertise to underwrite the world’s most complex risks. Our structure is a key source of strength but it presents our regulators with the challenge of how to accommodate our business model.

Our philosophy is clear. Access to markets is a key benefit of writing business through the Lloyd’s platform. That access can only be obtained and maintained by investing time with governments and regulators to explain Lloyd’s structure and operating model and to be open and transparent in all our dealings. We seek to build trust so that regulators place reliance on the work we do in supervising the Lloyd’s market, and we absorb this work centrally, leaving managing agents to focus on underwriting discipline and claims management.

For the past dozen years Lloyd’s has held an annual regulators’ programme in London to engage with regulators from around the world. More recently we have hosted regional regulator programmes in Singapore, China and the US. These events help build relationships between Lloyd’s and the regulators, but also between regulators. For the industry to be supervised efficiently, regulators must rely on each other whether through formal mechanisms such as Solvency II equivalence which we support, or with more informal relationship building and information sharing.

As we seek to expand our international market access our work with international regulators will only increase in importance. We are busy laying foundations in target markets around the world, building the case for Lloyd’s market entry and its accommodation into national law and regulation. In doing so we do not lose sight of the importance of continued competitive access to our existing markets and lose no opportunity to remind government and regulators of the value of Lloyd’s participation in their markets.


Drawn from member-backed syndicates supported by diverse capital providers and the Lloyd’s Central Fund we constantly seek to balance and improve our capital mix. We pursue this objective from a position of strength but never underestimate the inherent uncertainty in estimating future claims, changing market conditions, and our catastrophe exposure.

In 2014, as part of the Corporation’s market oversight role, we signed off the capital requirements for the syndicates trading at Lloyd’s. The market recognises this review as an important exercise and we were heartened by the strong sense of collective purpose. We started early with comments on interim submissions and when it came to agreeing final amounts, the trend for managing agents to take our feedback on board and build that into their own models continued.

Every year the Corporation collects an annual subscription from the syndicates to pay into the Central Fund based on how much premium they write – in 2014 we did this at the continuing rate of just 0.5% of premium. In addition, the Council recognised the recent good experience of the market and the low level of insolvent member calls on the Central Fund and returned half the amount we collected in 2012. This repayment was signalled at the time as not setting a precedent.

The Central Fund is the critical part of our capital supporting our global licences and our financial ratings.

We invest the fund to earn investment income. We also borrow from the capital markets, but here we only pay interest to the lenders (and pay back their principal) if Lloyd’s passes our regulatory capital test, that means Lloyd’s can count the debt proceeds as capital since the bondholders are subordinate to claims on the Central Fund.

The price charged by the capital markets to lend to insurers was low by historic standards in 2014 so we decided to pursue a new debt issue to provide additional flexibility under Solvency II capital requirements and to support expansion into new countries.

We successfully borrowed the full £500m with the final pricing at UK government 10-year Gilts plus 268 basis points and coupled that with a successful tender offer for the majority of our existing tier II subordinated debt issue. There remain wide concerns regarding the global economy, so it’s testament to our strong brand and financial position that we were able to get the deal done - and with strong support from blue chip investors.

The final part of our work during 2014 was to continue diversifying our capital base, particularly by attracting non-traditional sources of capital. The growth of alternative products and capital is well established in the reinsurance industry and we are determined to harness this trend in the years to come. We know that maintaining the attractiveness of Lloyd’s to a range of capital providers is fundamental to the market’s future success.


Unsurprisingly, we consider our trading rights and licences to be one of our most important assets. My goal is for managing agents, backed by capital from all over the world to tell us that they choose to do business on the Lloyd’s platform because we provide the optimal trading rights, we supply the most effective infrastructure, and because we give them access to write the business that they want to write in an effective, efficient and cost-competitive way.

By 2025, Asia and Latin America will account for half of global GDP output, yet currently they make up only one fifth of Lloyd’s premiums. Our competitors are offering increasing regional capacity in situ, the big brokers are creating more local networks, broker consolidation and local placement trends continue. Meanwhile, abundant capital floods into reinsurance and retention rates are rising.

In response to this global transition the Market Access team focuses on five themes:

  1. Do we understand the managing agents’ market access needs?
  2. Do we grasp how the brokers can help and what is in it for them?
  3. Do we understand what the customer wants and the potential growth of each market?
  4. Do we have the knowledge and experience to acquire new licences and protect the ones we have?
  5. Is our operating model compelling and competitive?

In 2014, we spent considerable time working to attract capital providers from emerging markets and broadening our licence network. We found that lead times in these markets are longer than we first anticipated but we made good progress in building these new relationships. I am confident that there are strong capital partnerships which should see daylight during 2015.

As mentioned elsewhere in this report, we have made good progress in expanding our global footprint during the past 12 months. We acquired a branch licence in Beijing, opened a representative office in Mexico City, and launched a platform in Dubai. We are heartened by the good progress we are making in India and will continue to work on increasing trading rights in Malaysia and Turkey.

During 2014 we built two working groups with membership from across the market, intent on making this a dialogue not a broadcast. During 2015 we will continue working together to assess opportunities and threats, and that can only strengthen our chance of success.