Yet, given the announcement came at a time when many in the market still have a bad taste in their mouths from Aon’s deal for Berkshire Hathaway to take 7.5% of its Lloyd’s business, the news seemed ominous. The feeling is that the Lloyd’s management could have done more to fight against a deal that it is feared will merely mean less business for those actually in Lloyd’s.
“I wonder why he is leaving now,” Phil Race, managing director of London market insurance technology firm Agencyport, told Reactions. “They didn’t have a successor in place and it’s a very high status and attractive role. You would have thought Lloyd’s would have prepared a replacement before Ward said he was off.”
Ward deserves much praise. He leaves Lloyd’s in a much better position than he found it.
The market has record capacity of £25.1bn ($37.1bn) for 2013, reflecting the continued attractiveness of the market. Going into 2013, 57 Lloyd’s managing agents were overseeing 89 active syndicates, including 12 special purpose vehicles providing £530m of sidecar capacity, according to Aon Benfield.
Lloyd’s reported an impressive pre-tax profit of £2.8bn for 2012, a turnaround from the £516m loss in 2011. It is a sign of Lloyd’s strength that Lloyd’s was able to take the record 2011 catastrophe losses in its stride, absorbing claims from the Japan earthquake, Thai floods, New Zealand earthquake relatively easily.
Gross written premiums were up by 8.6% to £25.5bn, boosted by an average risk-adjusted rate increase of 3%. Lloyd’s reported an underwriting profit of £1.7bn for 2012, after a loss of £1.2bn in 2011. The combined ratio improved to 91.1% from 106.8%
The appeal of Lloyd’s has only increased during Ward’s time, a fact for which he deserves much applause. All in all, his time has been a halcyon time for the market, especially when compared to the dark days of the 1990s. Companies have flocked to set up at Lloyd’s in the past seven years.
AM Best also last week revised the outlook to positive from stable and affirmed the financial strength rating (FSR) of A and issuer credit ratings (ICR) of “a+” of Lloyd’s and Lloyd’s Insurance Company (China) Limited (LICCL). This is a sign of the market's strength.
“The positive outlook reflects the market’s strong operating performance in recent years, in spite of the exceptional record of natural catastrophes, and AM Best’s assessment of the robust oversight of the market by Lloyd’s Performance Management Directorate and its demonstrable success in reducing earnings volatility,” said the rating agency. “The outlook also reflects the steady improvement in the market’s risk-adjusted capitalisation and AM Best’s expectation that the current level of capitalisation will be maintained for the foreseeable future.”
When making his announcement, Ward noted: “This has not been an easy decision to make but, as Lloyd’s longest-serving CEO, I believe it is now right to hand over the reins to someone else to take Lloyd’s into its next chapter.”
Lloyd’s this morning rang the Lutine bell for the new royal baby. The market is now eagerly waiting to see for whom the bell tolls as the next Lloyd’s CEO.
The challenge for Ward’s successor is to increase emerging markets premiums. The geographic spread of Lloyd’s premium in 2012 was 4% North America, 18% UK, 15% Europe, 13% Asia-Pacific, 8% other Americas and 5% rest of world.
Ward launched Vision 2025 last year, outlining the market’s ambition to grow in China, Brazil, Mexico, India and Turkey. It is up to his successor to deliver on that.
The market has still not modernised as much as Ward would have hoped when accepting the job. Ward joined Lloyd’s as CEO in April 2006, having previously worked as CEO and vice-chairman at the International Petroleum Exchange. He was responsible for introducing electronic trading on the exchange and hopes for him repeating the trick at Lloyd’s were high.
Ward can point to much achievement on the modernisation front. The successful pilot to speed up claims processing concluded in 2010, and delivered a 39% improvement in the average time taken to process claims in 2011. The take-up of the Lloyd’s Exchange for the transmission of standard Acord messages and endorsements was also encouraging. More than 700,000 messages passed over it in 2011 and it went live for all classes of business at the start of March 2012.
But a big disappointment was the failure to overhaul the distinctly old fashioned Lloyd’s IT infrastructure. The market cannot agree on what it wants and Ward has been unable to bring it together. This year Lloyd’s launched the modest Central Services Refresh after its predecessor Project Darwin was deemed a costly failure.
Roger Foord, owner of consultancy firm Roger Foord Associates, told Reactions: “Everyone has agreed it needs to be updated but no one is sure what they want to change.” He adds: “This is a market that doesn’t want technology for anything.”
Lloyd’s is a market that likes to have a good gossip, and a good moan. And people got plenty of ammunition for that when Aon revealed its deal with Berkshire Hathaway. It is understandable that many think the Lloyd’s management was caught blindsided by the deal and could have managed the process better. Ward’s successor must be wary of this.
But the Berkshire deal also highlights – rather than causes – another shift at the market. The future of the smaller Lloyd’s players looks bleak. The new CEO will manage the market through a period of upheaval. Ward has repeatedly said during his watch that you would not build Lloyd’s, and all the archaic practices that come with it, if starting from scratch today. It seems likely the smaller players, who add not much other than further cost when taking a tiny fraction on a deal and merely following the leader, will be increasingly marginalised.
In a Lloyd’s update Aon Benfield noted that mergers and acquisitions in Lloyd’s are increasing.
“Lloyd’s remains attractive to would-be new participants,” the reinsurance broker said. “The entry criteria have not changed, but market conditions make the existing hurdles harder to clear. These dynamics have resulted in continued high levels of merger and acquisition activity. Three managing agents have changed hands in 2013 and at least two others are actively engaged in sales processes..”
So expect further shifts among the Lloyd’s players under the watch of the new Lloyd’s CEO.