Lloyd’s CEO Nick Prettejohn, speaking Tuesday at the Royal Institute of International Affairs, gave a ringing endorsement of Lloyd’s reform program. Opening his remarks with a rhetorical question: “Is Lloyd’s worth reforming?” Prettejohn said his answer was “a resounding ‘Yes.'”
“The business of the market is buoyant,” Prettejohn continued. “This year, so far, our premium is 25% higher than a year ago. Our capacity to write premium for next year will be at record levels when we announce it later this month. One commentator has already predicted a figure of £14 billion [$21.8 billion], which would be 14% more than last year and 39% more than 2000. In GAAP terms, our gross premium for 2002 will be well in excess of $25 billion.”
Prettejohn noted that Lloyd’s, unlike many insurance companies, is not heavily invested in the equity markets – only around 5 percent of its capital – and therefore has not suffered from the recent decline in the value of investments as many companies have. He pointed out that Lloyd’s could afford to “lodge $5 billion in trust funds in the United States to fund gross liabilities relating to September 11,” and has already paid out around $2.5 billion in claims related to the attacks.
In setting out his case for reforming Lloyd’s structure, Prettejohn stressed that the Franchise concept, which the members adopted at an extraordinary meeting last September, would enable all participants in the London market to maximize the benefits of working through Lloyd’s.
“Let me take you through some of the key elements of the reforms,” he stated. “Firstly, the franchise reforms which address the issue of performance. The word franchise recognises that Lloyd’s businesses share in the collective assets that I discussed earlier:
— brand and reputation
— international licences
— membership of a unique market place
as well as the collectively held financial assets that underpin them, notably the Central Fund. The franchise concept further recognises that looking at these assets through an exclusively or predominately regulatory lens and acting accordingly will not maximise the value of the assets.”
So the franchise reforms are about making a transition from being a regulator to being something different: the manager of a franchise. For the avoidance of doubt, the transition does not mean a lock stock and barrel cessation of all previous activities labeled regulation. ”
He assured listeners that Lloyd’s was in fact broadening the reach of regulators under the overall supervision of the U.K.’s Financial Services Authority, and emphasized that this was a big “cultural change” for Lloyd’s, but one that would benefit everyone involved.
Summarizing the effect of moving to a franchise organization, Prettejohn indicated that, “The proposals are designed to improve the profitability of the market. They recognise the underlying strengths of the market – the very fact of being a market place of individual, expert underwriting businesses accountable to their own investors being paramount amongst those strengths. But at the same time the franchise proposals recognise the responsibility we have to preserve and enhance the precious collective assets that all Lloyd’s businesses share.”
“The reforms that were endorsed in September sought to make the market profitable; they also sought to create a modern and transparent market place.”
The entire text of his speech is available on Lloyd’s Website at http://www.lloyds.com.
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