Focus magazine - issue three 2009 - Lloyd's

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FOCUS Issue Three 2009. 03 more. > Volker Eutebach, Market Relations Manager, Germany volk[email protected]. As Chairman of Germany's largest ...

FOCUS > 02

sweden lloyd’s unveils new nordic office


insights from lloyd’s global network

hong kong postcard from lloyd’s alex faris


russia the long-term prospects

New dawn for Lloyd’s

Japan Lloyd’s Japan Inc. offers a flexible operating platform for managing agents

europe news

Lloyd’s sets its sights on Scandinavia

From the editor


elcome to the third issue of Focus for 2009. In our cover story, we access all areas at Lloyd’s Japan Inc. and hear from Iain Ferguson, President and Chief Operating Officer, about the new platform. Alex Faris, our General Representative in Hong Kong, sends us a postcard on recent developments in the insurance sector and a leading US insurance expert shares his insights on Lloyd’s position in the US market, plus much more. If you would like to receive future editions of Focus electronically, please contact [email protected] Kevin Reeves

Head of Operations, Lloyd’s International Markets

sweden A prestigious networking event was held on 17 September 2009 to mark the official opening of Lloyd’s new office in Stockholm, Sweden. Among the event’s 128 attendees were managing agents, risk managers and brokers from Sweden and London, as well as Andrew Mitchell, British Ambassador to Sweden, and Enrico Bertagna, Lloyd’s Regional Manager for Europe. Erik Börjesson, Lloyd’s first Nordic Area Manager, said that the event was an important way of establishing Lloyd’s presence in the local market. “The challenge is to make Lloyd’s better known in the area,” he explained. “My priorities are to meet more clients, brokers and managing agents in order to demystify Lloyd’s.” Börjesson emphasised that he will be working closely with local managing agents to ensure that Lloyd’s operations are aligned with their needs. “I want to be seen as a valuable source of information for managing agents,” he said. Lloyd’s specialist expertise in the marine, oil and gas sectors puts it in a strong position to build business in the Nordic market. The legal environment is also reasonably attractive to insurers in comparison with other markets, as it is easy to operate across The challenge is geographical borders. to make Lloyd’s Given the relative stability of the Nordic better known in market, with its culture of good risk management and the region’s lack of major the area natural hazards, Börjesson is confident about Lloyd’s prospects. “I hope to increase profitable lines of business and to investigate new distribution channels over the coming year,” he commented.

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Erik Börjesson, Lloyd’s Nordic Area Manager [email protected]

photos / Paul Stuart, Johanna Ward

contents 05

Building on Lloyd’s reputation in America


An innovative partnership in Hong Kong


Key indicators from the Japanese insurance market

Focus is published on behalf of Lloyd’s, One Lime Street, London ECM 7HA, by Wardour, Walmar House, 296 Regent Street, W1B 3AW. Care has been taken to ensure accuracy of information but neither Lloyd’s nor the publishers can accept responsibility for omissions or errors. Lloyd’s is regulated by the Financial Services Authority. © Lloyd’s 2009


Inset: Erik Börjesson, Andrew Mitchell and Enrico Bertagna

heads together

From left: Yorck Hillegaart, Dr. Leberecht Funk, Volker Eutebach, Enrico Bertagna

Dr. Leberecht Funk, Chairman of Funk Gruppe and President of the Association of German Insurance Brokers, tells Focus how top-quality service is essential to understanding risk germany As Chairman of Germany’s largest independent broker, Dr. Leberecht Funk is well placed to comment on the current challenges facing the broker community in the German insurance market. Lloyd’s provides specialist insurance and reinsurance cover to German clients through major and local brokers, including Funk Gruppe. The number of Lloyd’s managing agents with a local presence in Germany is growing: CV Starr and Beazley last year joined Hiscox, Catlin, Liberty and Omega with offices in the country. The German market is inherently highly competitive and German clients are generally very demanding. As a result, Dr. Funk believes that “brokers have increasingly extended their services and advisory capacities beyond the traditional insurance broker’s profile, especially for industrial and commercial clients”. The introduction of increased regulatory requirements also poses a challenge. While the Insurance Mediation Directive’s (IMD) emphasis on upfront transparency has been positive, what transparency is has yet to be commonly defined across the industry. “The second phase of the IMD will need to clarify this, and specify who will meet the additional cost burden, so that it does not distort competition,” Dr. Funk said. A principal challenge for the broking community is how labour is split between broking and insurance carriers. Major domestic insurer groups have realigned

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themselves with specialist industries or risks, and have become more streamlined to increase efficiency in what is currently a highly volatile market. This consolidation has affected staffing levels, which has meant that “the workload for brokers has increased to fill the gaps in insurer services to clients,” said Funk. This is closely aligned with what Dr. Funk regards as the “ongoing battle between processes and services”. Dr. Funk explained: “There is an emphasis on industrialisation of process in a market that expects faster responses. However, for those brokers that have followed this route, it is hasn’t worked. Access to top-quality services and the personal touch are often essential to fully understand the nature of the risk.” Yorck Hillegaart, Executive Board Member of Funk Gruppe, added that it is the personal touch that will enable them to deliver quality service in the future. “Brokers will need to decide which way they want to go. For the mass market, strength is based on process solutions. For smaller brokers, however, this is not a suitable option. Consultancy should not be an add-on – it should be at the heart of our service.”

> more Volker Eutebach, Market Relations Manager, Germany [email protected]


Europe news


German risk managers’ community.” Speaking at the event, Rolf-Peter Hoenen, President of the German Insurance Association, emphasised that the insurance sector was a “stabilising factor in the financial services industry.” Commenting on the current insurance market, he said: “Heavy competition has driven low rates in industrial property insurance, while in D&O an increase in losses was anticipated due to the financial crisis.” On the recently introduced mandatory germany The German Risk self-insured retention in D&O, Hoenen Managers’ Association annual that, since this does not prohibit The German added conference – Deutscher managers from buying private cover for Versicherungs-Schutzverband (DVS) insurance market their self-insured deductible, “insurers is built around Symposium – held in Munich in would be expected to respond with September saw record uptake this knowing the right appropriate products.” year, with more than 500 risk Presentations also centred on the people managers, insurers, brokers and legal high priority for risk management, advisers in attendance. with a consensus that solvency At this key networking platform for the industrial responsibilities for insurance companies could not insurance market, Lloyd’s General Representative in be delegated to rating agencies. Germany Burkard von Siegfried and Market Relations Premium rate developments were a recurrent hot Manager Volker Eutebach represented Lloyd’s along topic. In light of reduced business volume, Hannover with Catlin Germany and Hiscox Germany. Re pointed to a critical situation for next year’s premium “The Symposium lends itself to underwriters and level in industrial insurance, highlighting the need for brokers who are interested in long-term relationships the industry to ensure risk-adequate premiums. with corporate clients,” said Von Siegfried. “The German market is a good opportunity for more Lloyd’s, and it is very much a market built around Burkard von Siegfried, General Representative, knowing the right people. This event allows insurers Germany burkard.vonsiegf[email protected] to meet face-to-face with decision makers in the


A celebrated


GREECE Lloyd’s was one of the sponsors of the 70th anniversary event of the Hellenic Committee of Lloyd’s Brokers’ Associates in September, held at the Yacht Club of Greece in Piraeus. Under the auspices of the


Ministry of Mercantile Marine, key figures including Panagiotis Bartsiokas, Chairman of the Hellenic Committee of Lloyd’s Brokers Associates, Enrico Bertagna, Lloyd’s Regional Manager for Europe, Doucas Palaiologos, Chairman of the Union of Greek Insurance Companies and Simon Stonehouse, Chairman of the Joint Hull Committee, gave presentations to an audience of insurers and market participants from the domestic and international insurance markets. Speaking at the event, Bertagna thanked the Committee for its continued support. Lloyd’s underwriters have a long history of writing marine business from Greece and Bertagna emphasised the importance of continued collaboration in their success. “Our long-term commitment to the Greek market has enabled Lloyd’s to develop a significant

portfolio of business, which today ranges across diverse classes of business,” he said. While recognising the difficult period the Greek market is experiencing, Bertagna remained upbeat about emerging opportunities, and said: “With more international players investing in Greece, a stronger market is evolving to meet the insurance needs of the future.” He added: “There are some distinctive features of this market that are very attractive to our underwriters: a healthy attitude to diversifying and managing risk; a strong focus on relationships and, of course, an entrepreneurial approach to business.”

> more Marianna Papadakis, Lloyd’s General Manager for Greece [email protected]


Letter from


A leading US insurance expert believes that Lloyd’s success in the US lies in its reputation among coverholders as an efficient place to do business USA A key advantage of the Lloyd’s market is its understanding that US coverholders want the ability to access rated, quality security and to conduct business efficiently. Furthermore, it must continue to review practices and procedures to enhance this strength in the difficult economic context, according to one of America’s leading industry experts. Curtis Anderson, President of the American Association of Managing General Agents (AAMGA), was talking after the major National Association of Surplus Lines Organisations conference (NAPSLO), which was attended by representatives from Lloyd’s North America. He warned that the US domestic insurance market remains soft, appears to be softening further, and that the market is heading towards a ‘pain’ phase. Little action has been taken to raise or maintain rates and, depending on how long it takes for the US market to recover, Anderson believes that some carriers could soon suffer serious financial issues. The year was not without its catastrophic events; however, conventional wisdom would suggest that, if 2010 were to bring more catastrophes, and larger ones, the flight to a harder market might come more quickly. In addition to external economic turmoil, Anderson said the industry faces significant challenges, including the need to effectively harness new

focus Issue Three 2009

technology. Insurers must ensure that they get value for money when purchasing new systems and that those systems provide solutions to their business’ long-term needs. Taking action “Everyone will be asked again in 2010, to do more with less and to tighten their belts with respect to expenses. The broker and MGA distribution system might fluctuate in size but, overall, it will get stronger, as carriers continue to reduce their own costs and look for ways to engage a distribution network,” said Anderson. Describing the key actions that industry should take in the current economic environment, Anderson said: “Lloyd’s and the international insurance market must still focus on relationships and results. They must continue to review practices and procedures to ensure a strong framework is in place to accomplish the mutual priorities of releasing capacity to quality risks in light of the UK’s regulatory framework, while also making it easier to do business.” Maryanne Swaim, President of Lloyd’s Illinois, commented: “Managing agents use the NAPSLO conference to meet with their US producers to discuss business opportunities. It was important for Lloyd’s North America representatives to have a presence there in order to meet with managing agents, brokers and US producers to discuss Lloyd’s US business and promote the Lloyd’s brand.”

> more Maryanne Swaim, President of Lloyd’s Illinois [email protected]


ASIA news

Lloyd’s insures the world’s tallest ferris wheel, the Singapore Flyer (below left), and the London Eye

than in London, so while we have to be faithful to the substance of Lloyd’s Franchise Standards, we must also be prepared to adapt the form to take account of local business practices. For example, there are some aspects of the London view of contract certainty that aren’t applicable here, but we still need to ensure that the fundamentals for contract certainty are in place.” When it comes to claims activities, the lack of back-office technology means that local Lloyd’s entities do not have the capability to know when they are participating on the same risk as other syndicates trading in the market. “For many reasons, the Lloyd’s market is generally expected to have a single voice on claims. It is one of the things that I feel brokers value about our market. By asking managing agents to sign up to a Lloyd’s code of best practice for operating claims, we’re encouraging underwriters to interact and work in a more joined-up manner,” said Wilson. Lloyd’s Asia’s star is rising. Having seen steady growth over the past three years, an increasing percentage of business written on the platform is regional, as companies require new lines of business that are out of the comfort zone of local insurers. This trend is expected to continue as Asian economies, and China in particular, continue to develop and their insurance requirements become larger and more complex.

emerging market Singapore Simon Wilson, Lloyd’s General Manager for Singapore and Managing Director for Lloyd’s Asia, believes that there is now an opportunity to consolidate consistent processes and standards between Lloyd’s Asia Trading Centre and the London market. Earlier this year, Lloyd’s introduced the requirement for managing agents in Singapore to provide annual projected performance plans for their Singapore operations. Lloyd’s also laid down its expectations for the manner in which it expected placement activities to be conducted. More recently, it has launched a code of best practice regarding claims activities and a model Terms Of Business Arrangement (TOBA). Wilson said: “Our presence in Singapore is much smaller

hong kong When Lloyd’s Marketform Syndicate, a medical malpractice insurer, wanted to break into the niche SME Hong Kong market, it needed an established, specialised independent broker to work with. Marketform’s Director, Alex Wakeley, approached Alex Faris, Lloyd’s General Representative for Hong Kong, who suggested several potential brokers, one of which was Lambert Brothers. Lambert Brothers has been established in the Hong Kong market since 1946, serving middlemarket business, and has a

> more Simon Wilson, Lloyd’s General Manager for Singapore and Managing Director for Lloyd’s Asia [email protected]

specialist knowledge of which medical insurance products are right for the target market. Marketform established a partnership with it to launch a medical malpractice facility. “There were challenges, of course,” said Wakeley. “One was the knowledge that local regulations in Hong Kong are set to change as a more litigious attitude spreads through the region. This meant that the product had to be launched as soon as possible to gain ground. “While we wanted to target the small, alternative practitioners primarily, Lambert Brothers recommended that the product did not exclude the main clients; for example, Hong Kong has a large number of Chinese medical practitioners who might also be included under the terms,” he added. Medical malpractice

Medical marvel

> more Alex Faris, Lloyd’s General Representative, Hong Kong [email protected]

policies in Hong Kong cover clients for negligence in respect of rendering or failure to render medical services, or in the provision of medical services. The Marketform wording can be tailor-made to suit the insured, in accordance with policy terms and conditions, in or about the conduct of the assured’s occupation or business. “It covers the sort of businesses that are not generally covered by standard medical malpractice policies, such as massage parlours, lifestyle consultants and speech therapists, all of which are potential long-term clients. It is early stages yet, but the whole approach is to understand the market and what the real everyday issues are for the alternative medicine sector,” explained Wakeley.


Playing to our

strengths Jose Ribeiro, Director of International Markets, on the issues facing Lloyd’s in developing business in Europe lloyd’s most recent CEO survey shows that continental that our key competitors in Europe prefer to deal directly Europe, and the EU in particular, is a development priority with their clients or via their agents, and brokers currently for our managing agents, with considerable interest in cannot afford not to work with them due to a lack of viable Russia and Turkey as emerging markets. alternatives. We can provide that alternative. Accessing the mature European markets is not easy, UNDERSTANDING OUR WEAKNESSES however. There are strong local players which have long established relationships with brokers and clients, and are While Lloyd’s has representative offices in several countries, willing to carry accounts even through unprofitable and some managing agents also have service companies on periods. Lloyd’s currently has a marginal presence in the ground, we don’t seem to rival local players in terms continental European markets, with £1.57bn in direct of product scope, capacity and local servicing capabilities. insurance premiums and £1.24bn in reinsurance premiums While our focus on profitability means that our written in 2008. With direct insurance underwriters are not afraid to pull out premiums in Europe totalling £323bn, of unprofitable accounts, local underwriters Lloyd’s currently has just 0.9% of the pie. will often behave differently to maintain The question we have to ask is: why? client loyalty. We have one Local brokers are telling us that Lloyd’s is PREPARING THE WAY AHEAD too complex and difficult to access; that it of the most efficient, takes longer and is more costly for a local entrepreneurial and The success of Lloyd’s strategy for Europe broker to quote with Lloyd’s than with therefore relies on focusing our efforts in service oriented, local markets; and that our policy several key areas. delegated authority wordings do not always match the local We must tailor our coverholder model wordings to which European clients models in the insurance to make us more appealing to local SME are accustomed. and niche markets, where there is demand industry Even where managing agents have a for creativity, and provide quick responses local presence via service companies, and high-quality services in local languages. visibility is limited and usually regarded only as an Our ability to compete head to head with local insurers on alternative for niche products. Local insurers, large accounts is limited, but the coverholder model we are told, provide comprehensive and broad coverage provides a competitive, ‘variable cost’ approach to local solutions to client needs. markets at a manageable level of operating risk. So, how can Lloyd’s overcome these difficulties and In our reinsurance business, we need to actively support compete more effectively for direct European business? the major broking houses in winning accounts from our The answer is not an easy one. Europe is a collection competitors who prefer to deal directly with local insurers. of very different markets and the challenges are not Introducing local broker and coverholder relationship to be underestimated. Lloyd’s needs to adopt a strategic management programmes will help bring Lloyd’s closer approach that makes best use of our strengths and to key stakeholders, making the Lloyd’s market easier mitigates our weaknesses. to understand and access. This strategy will not turn us into a market leader in TRADING ON OUR reputation continental Europe, but it will start putting us on the map. Let us not forget the strength of the Lloyd’s brand We will then find ourselves in a position where we can and our reputation for innovation. We are well known plan the next steps. F for being able to quickly deliver creative solutions to complex problems. We have one of the most efficient, more entrepreneurial and service-oriented, delegated authority Jose Ribeiro, Director of International models in the insurance industry. Markets [email protected] Lloyd’s is a broker-friendly market. Local brokers know


focus Issue Three 2009


Repositioning Lloyd’s

in Japan

A busy year for Lloyd’s Japan Inc. has laid strong foundations for growth. Focus finds President and Chief Operating Officer Iain Ferguson optimistic as he looks ahead to 2010

lloyd’s underwriters who have been involved in the Japanese market at some point in their career maintain their interest in Japan long after they have changed role or company, explains Iain Ferguson, President and Chief Operating Officer of Lloyd’s Japan Inc (LJI). “Why? They value the relationships that they have built with the market in Japan over the years and, despite the seemingly thin rates, they understand its inherently profitable nature.” Japan has a number of characteristics that should make it attractive to managing agents. Among these is a stable and profitable – albeit highly concentrated – insurance market that allows managing agents to diversify their portfolios geographically. Claims experience also tends to be favourable. “It wasn’t so long ago that Japan was a tariff market, with rates pitched at a level expected to make a modest profit for insurers. This was the basis for many of the rates we see in the market today,” says Ferguson. “Admittedly, current rates are lower, but in most cases this has been balanced by improvements in operating expense. In addition, while I wouldn’t say it doesn’t happen, we generally see less moral hazard risk and very little aggressive or opportunistic litigation compared to the West.”



photo / Diana Schuenemann

LJI has had a busy year in 2009, improving the scope of its business licence, the flexibility of its platform and creating a more robust internal controls and compliance environment. Next year will see a much stronger focus on market and business development, with initiatives to capture more market opportunities and to attract more participation from managing agents. “We want managing agents to understand that while Japan is a difficult and daunting market to access locally, it is an interesting and profitable place to do business,” says Ferguson. “And now the new Lloyd’s Japan has excellent facilities to help them penetrate the market.” A flexible platform In order to properly explore these business opportunities, it was first necessary to make LJI more accessible. The order of the day was introducing a flexible and open platform. Under the old model, which Lloyd’s operated in Japan from 1997-2007, participation was through one general binding authority, whereby risks were shared in predetermined percentages. This approach remains an option, but managing agents are now able

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to participate through an independent binder, providing more underwriting freedom. In addition to these changes to its operating platform, LJI has introduced the option of supporting managing agents’ business in Japan as a coverholder. Managing agents therefore have the choice of setting up their own dedicated underwriting division or delegating to the LJI joint underwriting services team, which will underwrite on their behalf under delegated authority contracts. “It means that managing agents who are interested in Japan, but are not able or ready to deploy staff resources here to write their own business, can have us do it for them,” explains Ferguson. “We have an extremely experienced team of underwriters and policy administration people. They know the market and the people in the market and can make sensible underwriting decisions on behalf of managing agents. “We’ve improved the flexibility of our licence and we’ve enhanced the flexibility of our platform for different participation methods,” Ferguson continues. “In addition, LJI has now relocated to a new, upgraded office in central Tokyo this November. The official launch of this new office is expected to be held in March

09 0


The key challenge is to successfully research and match the market development opportunities that we see in Japan with the appetites of managing agents in London

2010, with Lloyd’s Chairman Lord Levene in attendance.”  LJI is also tightening up its internal controls by introducing a new IT system. “All the live or core data will reside on the Lloyd’s Japan system – and it has to for regulatory reasons. If managing agents also want to use their own systems, then they can make arrangements to do that. But the master data will be on one system and that provides a much stronger platform from an internal control and compliance perspective, especially when we’re operating as a coverholder,” explains Ferguson. Innovative thinking Having established the right launching pad for market participants, the next challenge starts in 2010. It involves tackling misconceptions about Lloyd’s in Japan and breaking into a mature and highly concentrated market, which has become even more consolidated following deregulation in 1996. The elimination of fixed rates, removal of barriers to entry and promotion of cross-sector entry of life and non-life insurers sparked a rash of mergers and acquisitions, which continues today. Approximately 80% of the market is controlled by the largest three insurance groups, explains Ferguson. In addition, Lloyd’s traditional broker channels are weak in Japan, representing only 0.3% of direct market premiums in fiscal 2007. Agency networks dominate with 93% and the remainder is written by direct marketing companies. “While we will continue to support the broker market, it is clear that we also have to consider more innovative distribution models to gain market access,” he says. Ferguson wants to reposition Lloyd’s as a solutions provider. From a reinsurance perspective, the market has already gained a successful reputation in this regard, although reinsurance business flows directly into London. He wants LJI to become a similar capacity provider for locally-retained business. One such model is the ‘support provider’ concept, where LJI


partners with a domestic insurer or trading company to offer insurance solutions to the partner company’s existing client base. “Typically, that would mean providing Lloyd’s product and marketing expertise but allowing the partner company to use its own brand and cross-sell new products to its existing customer base. Because we’re taking a more cooperative, rather than competitive, stance, the partner company feels less threatened and can see the value of the contribution that we bring to the table.” Successfully communicating the support provider model in Japan, however, will involve a difficult educational challenge. While Lloyd’s is held in high regard in Japan, the past assumption has been that the market is best geared towards niche or specialist business. To a certain extent this is a reputation Lloyd’s has cultivated, based on its proud heritage as a specialist market, according to Ferguson. But it is time to educate the Japanese market on the broad scope of Lloyd’s capabilities. “People consider us to be niche, when actually the vast majority of our business is standard property, liability and marine. Sure, we are good at niche specialist lines, but we can also do the more traditional business.” As the market approaches its main renewals on 1 April 2010, Ferguson feels upbeat. “Looking to the future, I have every reason to be confident about Lloyd’s Japan,” he concludes. “The key challenge is to successfully research and match the market development opportunities that we see in Japan with the appetites of managing agents in London.” F

> more Iain Ferguson, President and Chief Operating Officer, Lloyd’s Japan Inc. [email protected] Lloyd’s Japan Inc., 38F GranTokyo North Tower 1-9-1 Marunouchi, Chiyoda-ku, Tokyo 100-6738


By air mail

Par avion

talk of the town Alex Faris, Lloyd’s Representative in Hong Kong, finds the insurance industry is making the headlines One consequence of the global financial crisis has been the considerable media coverage of the financial services industry, including insurance, here in Hong Kong. The insolvency of a domestic insurer earlier this year generated further interest in the issues that are currently facing the industry. The insolvent in question, Anglo-Starlite, made frontpage news owing to allegations of fraud contributing to the insolvency, which is still under investigation. Anglo-Starlite insured a large share of the taxi market and, while policyholders were protected under the Motor Insurers’ Bureau of Hong Kong, the industry did have to make changes to the Bureau in order to accommodate third-party damage claims. The quick response of the insurance industry averted further negative press and helped to restore public confidence. However, this case has increased the desire for a policyholder protection fund for the insurance industry. As it currently stands there are schemes in place to protect bank deposits, but not insurance policies outside of the compulsory classes. The proposed policyholder protection fund is currently being debated by the industry and the government is looking at how other models around the world operate. In addition, there will be a consultation this year about making the insurance regulator in Hong Kong an independent body rather than a government department. This is being proposed to provide better

customer protection and closer regulation of insurance firms and agents. The market in Hong Kong has grown rapidly in recent years – 40% from 2001 to 2008 on the non-life side – and even in the current economic climate, it is still showing small growth. Insurance is an important contributor to the economy, representing about 11% of gross domestic product, and, with 172 authorised insurers, 107 of which are general insurers, it is a crowded market relative to the size of the population. rising star The perspective among brokers is that Lloyd’s is a wellrespected brand, and interest is growing in light of our resilience in the current economic conditions. Brokers are increasingly keen to understand Lloyd’s specific structures in Asia and this, in my opinion, creates a good opportunity to raise Lloyd’s profile – by explaining how we operate, we can make the market more accessible to brokers. I also promote the financial strength of Lloyd’s and the increasing presence of underwriters in the region. In Hong Kong we have one of our most flexible trading positions. We have five syndicate service companies based here writing multiline regional business and, currently, 12 independent coverholders writing niche lines such as yachts and bloodstock. Local brokers enjoy being able to place business in the same time zone and with specialists who know the regional markets. There is a large volume of good quality capacity in Asia, including many of our major competitors, so it is important for Lloyd’s underwriters to be present, via their own underwriters or via coverholders, to be able to write business that no longer reaches the London market. F

Brokers are keen to understand Lloyd’s specific structures in Asia

focus Issue Three 2009

more >>

Alex Faris, Lloyd’s General Representative, Hong Kong, [email protected]

the information

Japanby numbers The introduction of a new flexible operating platform sees Lloyd’s Japan repositioning itself to penetrate the market for locally-retained business. This snapshot shows, at a glance, Lloyd’s Japan’s Gross Net Premiums Written (GNPW), as at July 2009, by ten high-level classes of business and major regions of exposure, alongside key indicators from the Japanese insurance market.



LLOYD’S Japan GNPW income Split by lloyd’s ten major Classes of Business










7.35% 1.21% accident & health

0% aviation

0% casualty

casualty treaty

0.53% energy

0% marine

overseas motor

0% property (D&F)

property treaty

uk motor

Source: Analysis Team Franchise Performance Directorate All figures are Gross Net Premiums Written (GNPW) year-to-date as at July 2009.



Japan is the 12th easiest country in which to conduct business out of 181 countries surveyed according to

54% Motor dominates Japan’s non-life market with a 54% share


Japan is the 4th largest non-life market

19.5% Tokio Marine Nichido is currently the largest insurer in Japan with a 19.5% market share

> more

LLOYD’S Japan GNPW income by exposure East Asia: 88.3% Uk: 1.4% Western Europe: 0.3% Central & Eastern Europe: 0.2% Rest of world: 9.8%

For the latest market intelligence, visit

focus Issue Three 2009


Poised for progress Current financial turbulence and growing competitive pressures are set to test Russia’s insurance market in the short term, but there remain longer-term opportunities

while the russian economy has enjoyed significant growth in recent years – GDP more than tripled between 2001 and 2007, from £186bn to £665bn – it is highly exposed to the fluctuations of commodity prices. The global financial crisis and sharp drop in global energy prices is expected to cause a slowdown in 2009. Despite the authorities’ rapid response to the crisis, pumping liquidity and capital into the country’s banking system, Russia is facing a deeper and longer downturn than was initially thought, according to the Organisation for Economic Cooperation and Development (OECD). As a relatively new democracy, parts of Russia’s economy have been liberalised while others remain under strict government control. Russia’s insurance market is still in the early stages of development. It is dominated by a small number of large insurers, while the rest of the market is highly fragmented and characterised by a large number of small and undercapitalised insurers. The ten largest insurers control 60% of the market and 58% of this business is concentrated around the capital, Moscow. During the former Soviet insurance monopoly, distribution of domestic insurance products took place through Gosstrakh and foreign insurance through sister company Ingosstrakh. However, the breakup of the Soviet Union in 1991 led to the creation of a significant number of private insurers. Today, there are various distribution channels, including broker, direct and bancassurance. The top five brokers are Aon, Marsh, Willis, JLT and Cooper Gay. Dealing with the crisis While recent years have seen significant growth in premiums – 32% in 2008 – a slowdown is expected as the market comes under unprecedented stress in 2010.



The future size of the Russian market could rival developed insurance markets

photo / Konstantin Kokoshkin

While insurers were able to build up decent capital reserves during the good years, profitability is now under pressure. Russian insurers entered the crisis with a high exposure to equity investments and this has led to substantial asset deterioration. Other causes for concern include deteriorating expense ratios and strained capital positions as companies deal with the impact of high inflation and low premium rates. An increase in fraud is also leading to higher claims activity, while consolidation is expected to drive further competition in the market. Heightened competition is expected to exert a downward pressure on rates, particularly in the retail sector. Earlier this year, Fitch Ratings assigned a negative outlook to the Russian insurance sector. “Profitability in the sector will likely deteriorate throughout 2009 due to continuing volatility in investment performance and pressure on underwriting earnings,” says Lyuba Tarnopolsky, director in Fitch’s Insurance team. “Severe recessionary pressures are already apparent within Russia. We expect that these pressures may lead to increased frequency of claims due to a rise in insurance-related fraudulent activity as well as claims relating to contractual liability and financial guarantees, as businesses come under pressure from the economic slowdown.” Reshaping the landscape With the country’s huge population and vast natural resources, the long-term opportunities for the Russian economy and its insurance industry remain positive. Penetration is low for both retail and commercial insurance lines, with less than 10% of total Russian commerce insured in 2008. Based on this low penetration, the future size of the market could rival developed insurance markets. facts and figures Potentially driving greater insurance take-up for some classes is the introduction of mandatory covers. New GDP Gross Written regulations regarding mandatory liability insurance for Premiums (GWP) Estimated for 2008: motor vehicles came into effect on 1 March. The new Total direct premiums £905bn compulsory cover is expected to result in premiums for in 2008: £20.9bn motor insurance growing by as much as 21% for 2009. Leading classes of While the financial crisis may depress the Russian business in 2008 Total non-life insurance market over the short term, the longer-term view Compulsory medical premiums: £20.5bn from Standard & Poor’s is that it is likely to reshape the accounted for whole landscape of Russian insurance. Larger players in Total life premiums: premiums of £8.6bn; particular are expected to benefit. “The crisis will have some £413m property £6.9bn; positive consequences for the sector,” says credit analyst personal £4.3bn; Population Victor Nikolskiy. “Unqualified, undercapitalised players motor £3.2bn; liability Estimated in July 2009 will fail, leaving those that remain more transparent and £0.9bn; life £0.8bn; at 140m people customer friendly; companies will widen their distribution and compulsory channels; and operating expenses will be optimised as the other £0.3bn lack of insurance personnel becomes less critical.” F

Russia: Moscow Oblast cultural centre “Krasnie Holmi” (“Red Hills”)

focus Issue Three 2009




BertagnA Lloyd’s Regional Manager for Europe and General Representative for Italy

but we also need to help the less structured ones. In this area we are exploring solutions that can make the Lloyd’s market more user-friendly in local markets. In Italy we have a model that is highly oriented towards helping our local business partners. The coverholder model is also another very effective way of making Lloyd’s more accessible at a local level. In Europe there are very good MGAs that do not necessarily place business with us and we should engage with them as potential future partners.

photo / Johanna Ward

cv Born in Brescia, Italy, Enrico was appointed Area Manager of the INA Assitalia group in 1987. He joined the Lloyd’s Italian Office in 1990, becoming Lloyd’s General Representative for Italy in 1999. Since 2007, Enrico has held the role of Regional European Manager for Lloyd’s offices in Europe while retaining his position of Country Manager for Italy.


What are the opportunities and challenges for Lloyd’s in Europe? Having the strongest brand in the industry and the fact that there is a lack of specialist underwriting skills in most European markets are the principal opportunities for Lloyd’s. The key challenge remains that we still operate a London-centric underwriting model whereas tell us about Lloyd’s reputation our competitors are all local, dealing with the in Europe Lloyd’s has a great buyers according to local market practices and reputation in most European markets. in their own language. My ultimate objective Our brand is highly regarded and Lloyd’s is to help bring continental Europe up to the is viewed as an important, reliable and same level as the US in terms of the volume unique institution. When I talk to our of business placed at Lloyd’s. This ultimately clients it is evident that they are proud of means making Lloyd’s worldwide book of being able to say “I have a Lloyd’s policy” business larger and more balanced. – especially since we can still be perceived as out of reach to some due to the myth Which countries are you that we only insure large risks. That said, currently focusing on and why? I do not think that we, as a market, are In terms of mature markets, the priorities fully capitalising on these strengths and are France and Germany. In France we are appreciating how powerful this can truly underweight compared to the overall size be in doing business in Europe. I am of the non-life market, whereas in Germany a great believer in ‘collective solutions’, most of our business is reinsurance. I believe which means presenting ourselves as a we should see whether it is possible to better unified entity. This represents the best balance our book in both countries. In way for the Lloyd’s market to effectively emerging markets, Poland is a priority as it deploy the brand’s strengths. European is the largest Eastern European economy buyers trust those they can see and those and country. We are also looking at the that they know. Even though we are well Czech Republic, Hungary and Romania known, we are not yet sufficiently visible. as in all these countries there is high broker penetration, which is an essential feature How are you making Lloyd’s in developing potential business for a broker more accessible to European market like Lloyd’s. F buyers? Raising the level of understanding about how Lloyd’s more operates is the starting point. For more sophisticated buyers, this is usually Tel: +39 (0)2 6378881 [email protected] enough to become active participants,