Lloyd’s recently unveiled its strategy plan for the next three years. This plan forms part of the so-called Lloyd’s Vision 2025 which was published a couple of years ago and which sets out Lloyd’s key long-term objectives.
Since Vision 2025 was published, Inga Beale has been appointed as CEO of Lloyd’s. This has coincided with a slight shift in emphasis in some of the content of Vision 2025, principally around international growth and diversity of capital.
Taking each of these in turn, firstly, with regard to international growth. As the strategy plan notes, expansion into developing markets remains at the heart of Vision 2025. Even though Lloyd’s appreciates that in the short term, it is likely that, despite some challenging market conditions, established markets will continue to present the most profitable opportunities, there is no change to the objective of Lloyd’s to be able to access all major overseas territories, including emerging markets.
However, what is now emphasised is that Lloyd’s does not want this growth to be limited to growing cross- border reinsurance business, but would also like it to include increasing Lloyd’s share of insurance business in developing markets.
To assist in achieving this, Lloyd’s has identified the following short-term actions:
- It will continue to work with the Turkish and Indonesian governments to secure necessary legislative changes to enable trading licences to be granted
- It will conduct a feasibility study for insurance licence opportunities in Brazil
- It will conduct feasibility studies for a Lloyd’s presence in Indonesia, Malaysia and South Korea, open a branch office in Beijing, investigate options in Latin America, including in particular Colombia and Mexico, and deliver plans for a new co-location office in Dubai
- It will assist brokers to build and develop relationships in developing markets
Secondly, with regard to capital, Lloyd’s is keen for its capital base to become more globally diversified. As pointed out in the strategy plan, maintaining the attractiveness of Lloyd’s to a range of capital providers will underpin the market’s future success, as well as supporting the objective of increasing the market’s access to specialist business in developing economies.
To this end, Lloyd’s will continue to work with the market to facilitate the entry of new capital (with new business) from trade players in developing markets, which could take the form of new capital backing new syndicates or in support of existing businesses.
Lloyd’s has identified the following short-term actions to seek to diversify its capital base:
- It will continue to build relationships which focus on increasing the understanding of potential new capital providers as to how they can participate at Lloyd’s
- Whilst acknowledging and to an extent embracing the growth of non-traditional products and capital in reinsurance, Lloyd’s notes that it is still a market for indemnity-based products, and Lloyd’s would like to promote the benefits of indemnity (versus parametric) solutions as best meeting clients’ needs
So, what are some of the key take-away messages from the strategy plan?
Well, one is that Lloyd’s cannot afford to rest on its laurels. There is a recognition that the market environment is changing, and, whilst this presents challenges, there are also opportunities which Lloyd’s needs to grasp. These opportunities include, in the longer term, winning new business in developing markets, and, in seeking to do so, Lloyd’s appears to be flexible in terms of what business model it will adopt (be it, for example, by way of a licence or the setting up of a local establishment) taking into account local commercial and regulatory requirements.
Another is that distribution, and the role played by the brokers, remains key to delivering the Vision. Lloyd’s reiterates that it is a broker market, with brokers involved in all of Lloyd’s distribution channels. Indeed, Lloyd’s would like to see growth in all of its existing channels (brokers, coverholders, service companies, and Lloyd’s local underwriting offices). Lloyd’s is also encouraging managing agents to consider new distribution options (such as joint ventures with local (re)insurers) which it will help facilitate where appropriate. It should be noted that there has been some criticism expressed by, in particular, mid-size wholesale brokers who are concerned at the prospect of local brokers being potentially able to directly access the Lloyd’s market via local underwriting offices.
Finally, on an issue which has prompted quite a bit of debate recently, Lloyd’s comments that it will also work with interested managing agents to develop consortia and facility arrangements where market and client demand exists, but these will need to have appropriate checks and balances on any delegation of underwriting and claims authority.
The ambition of Lloyd’s which it set out originally in its long-term Vision, and which it is developing and refining by way of its shorter-term strategy plans, is clear and laudable. It will be interesting, however, to see how much progress is made over the months and years to achieve this ambition, and the extent to which there is buy-in from managing agents and brokers.