Lloyd’s CEO Richard Ward on a Successful Four Years

By | March 29, 2010

When he succeeded Nick Prettejohn as Lloyd’s of London’s CEO in 2006, Richard Ward was not an experienced veteran of the insurance industry, but then neither was Prettejohn, a former senior management consultant at Bain & Co. Neither is Lord Peter Levene, Lloyd’s Chairman. It made no difference. In fact an outside perspective has been of definite benefit to Lloyd’s.

Levene is largely credited with rescuing and successfully shepherding the development of the Canary Wharf financial site. Ward spent 10 years making over the International Petroleum Exchange (IPE) from a paper-based institution, to a completely electronic modern trading platform. The “outsiders” have their skill and experience to Lloyd’s, a good example of the advantages of “looking outside the box.”

On the day Lloyd’s announced its best profit figures ever – £3.86 billion [$5.8 billion] in 2009 – Ward discusses some of the initiatives behind that success In the accompanying podcast. “I could speak for hours on what’s been achieved since 2006,” he said. Unfortunately he only had 15 minutes.

“Performance management” headed the list, a shorthand term for embedding a system of “underwriting and capital management,” overseen by the Franchise Board, which reviews, approves and sometimes changes the business plans submitted by Lloyd’s syndicates, and monitors their actions to assure they stick to their plans. This assures that the “aggregate risks in the market and the individual risks in the syndicate are supported by an adequate level of capital,” Ward explained.

He stressed that these measures have reinforced the “discipline that we need for underwriting.” That discipline has now enabled Lloyd’s to build its central fund, which backs up the syndicates financially, to increase to more than £2 billion [$3 billion], “the strongest ever.” That fact combined with the transfer of Equitas to Berkshire Hathaway, led to ratings upgrades from S&P and Fitch (‘A+’ from ‘A’).

Lloyd’s has also “extended” its “market reach” and “improved market access,” with a recently opened reinsurance office in China, a “revamped” Asian platform in Singapore and Japan, the opening of an office in Brazil and an expansion of its licensing network across Europe.

Ward also pointed out that “market efficiency,” in which he “has taken a personal interest,” has made great strides over the last four years. “All our contracts are contract certain … we’ve launched initiatives around the electronic processing of claims and premium documentation.” All of these processes are now performed entirely by electronic means.

2009 saw the introduction of the “Lloyd’s Exchange,” which is “all around making it easier to send information around the Lloyd’s market.” It uses ACORD Standards and simple technology to move information around the market between brokers and underwriters.

Electronic processing has not, however, replaced people and isn’t designed to do so. Ward stressed the need to have people work together “in a more collaborative, cooperative fashion.” He is quite proud of the success in establishing more of a partner relationship with the market than a strictly supervisory role. “The idea is to help them, rather than police them.”

Around half of the team overseeing those operations has joined Lloyd’s since 2006, including the new Franchise Director Tom Bolt and Sue Langley, Director of Lloyd’s Market Operations & North America. They are people Ward has carefully chosen to implement his and Lloyd’s goals.

As Lloyd’s derives 80 percent of its business from outside the UK, and 45 percent from North America, international development is an ongoing priority. There are mature markets – the U.S., the UK, Europe and Japan, and there are also areas where Lloyd’s sees growth potential. “Central Asia and Asia Pacific account for 9 percent of our business,” Ward said. “And in the long term the growth is going to come from the east [Asia] and the south [Latin America and Africa].”

Ward explained that at present Lloyd’s business is split fairly evenly between insurance (Lloyd’s is one of the biggest surplus lines writers in the U.S) and reinsurance (it is ranked among the five largest in the world), and he doesn’t see that changing.

Commenting on recently announced plans to establish a Lloyd’s type insurance exchange in New York, Ward said: “We’ve had a lot of contact with James Wrynn, who’s the New York superintendent; we’ve entertained him over here in London; we’ve met him in New York, and he has asked us to participate in the working groups aimed at scoping out the New York Insurance Exchange.”

The groups aren’t due to report back until September, consequently Ward said, “it’s far too early to say what shape or form the exchange will take, and therefore what impact or otherwise it might have on us.” He added that as a result it’s also too early to determine whether the exchange would be “complementary or competitive.”

Lloyd’s participation with the working groups has spawned reports that it might be thinking about setting up its own U.S.-based platform. This seems unlikely, and Ward didn’t comment on it. One of Lloyd’s greatest strengths is the supply of experienced brokers and underwriters gathered around One Lime Street in the City of London’s EC3 postal zone. That would be hard to replicate anywhere else, and would ultimately only serve to dilute London’s insurance talent pool.

On the other hand maybe Wyrnn wants to see if some of that talent might be interested in moving to NYC. It’s doubtful that Richard Ward would leave Lloyd’s anytime soon, but, if he did, New York couldn’t find a better manager for its fledgling exchange.

Ward generally acknowledged that both on the investment side and the underwriting side of the market there’s little chance for significant growth in 2010 or 2011. He noted, however, that some of the syndicate’s profits could be attributed both to a benign catastrophe year in 2009 and the concomitant releases of prior year’s reserves. He doesn’t expect this trend to continue, and as a consequence, this will “put pressure on underwriting and rates will have to go up.”

Turning to the ongoing discussion over the collateral requirements imposed on Lloyd’s and other reinsurance companies, who are not resident in the U.S., Ward noted that discussions continue with the NAIC, and expressed the hope that someday Lloyd’s will no longer “be classified as an ‘alien reinsurer.'”

On a subject that affects the insurance industry globally Ward detailed some of the initiatives Lloyd’s and others have taken to attract qualified new talent into the industry. “New talent is critical to this market,” he said, “the whole market has been built up on the talent we have.” In 2008 Ward was instrumental in re-launching a graduate recruitment program that Lloyd’s hadn’t had for “15 to 20 years.” It’s aimed at letting potential recruits know that “we do fascinating business, exciting business and stimulating business.” It has been so successful that Lloyds can’t take all of the applicants. Many of them, however, go on to join one of the managing general agents who oversee the syndicates.

The interview concluded with Ward’s admonition that it is vital for the insurance industry to let regulators and the general public know that the industry did not suffer nearly as much as the other financial sectors, notably the banks, from the financial crisis. He’s done his part appearing on CNBC, Radio 4 in the UK, and in an upcoming interview with Bloomberg. “And guys, we’re not Lloyds Bank,” he said, “we’re Lloyd’s of London, world’s leading insurance market.” We’ve successfully come through this crisis, continued to provide a “critical service, a socially valuable service to our clients, and also make money, and [have] not required any government support at all.”

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