A Guide - Life at the top

Non-Lloyd's insurance brokers have enjoyed access to the Lloyd's market for many years, either via the Lloyd's guaranteeing brokers or through the service companies set up by the syndicates especially for that purpose.

Illium Insurance Services is a recent example, established in December 2004 by the Illium syndicate, which itself only came into being in 2003.

Operating director Colin Rogers, one of Illium Managing Agency's three founding partners, confirms that much of the business sought derives from provincial brokers, many of which are not necessarily Lloyd's brokers: "The access via the service company means that regional brokers can have business placed directly into Lloyd's. But that is not to say we want to cut out the Lloyd's brokers we already deal with. The main thrust of IISL is to allow the local offices of the national brokers to place business without necessarily having to go through London. It is basically all about enhancing access to Lloyd's for all of our customers."

The business written includes employers' liability, public and products liabilities, with some contractors' all-risks, all via Syndicate 4040.

About 80% of the portfolio relates to commercial firms in the UK and capacity for 2005 is £70m, down from £96.5m in 2004.

This decrease in capacity follows an overall trend that suggests the 2005 global capacity at Lloyd's will shrink by approximately 9% to £13.7bn and is reflected among several other syndicates - one of the largest being Amlin Underwriting - writing to a £850m capacity in 2005.

Amlin states that the decrease from £1bn in 2004 is in line with the underwriting cycle and reflects its focus on delivering underwriting profit.

Amlin is a recognised front runner in the London insurance and reinsurance market, providing a global client base with risk-management solutions.

Its interest to provincial brokers probably lies mainly in its UK commercial specialism and its five service companies serving niche markets: St Margaret's, Haven-Knox Johnson, Amlin Credit, Amlin Plus and Amlin Transit.

Brokers usually have their own opinion as to the advantages and disadvantages of accessing Lloyd's rather than going to the company market. Frank Murphy, managing director of Thompson Heath & Bond - the Lloyd's broking arm of the THB Group - cites those advantages as including accessibility, licensing, one rating, one policy, subscription market and response times, generally.

Gerry Albanese, Markel International's president and chief executive officer, says that, as a subscription market, Lloyd's is particularly appropriate for writing either complex or specialist risks that can be spread across a number of underwriters.

"With its centrally managed policy insurance and claims arrangements, brokers and their clients will be assured of a standard level of service on Lloyd's policies. However, the subscription process may take time, as the broker has to show the risk to a number of possible underwriters.

Therefore, clients wanting to achieve immediate cover for more standard risks may find that a company market solution would suit their needs better, as policies can be issued almost immediately with the chosen insurance company writing 100% of the risk."

Markel International underwrites a diverse portfolio of property, casualty and marine and reinsurance business on a worldwide basis. Markel Syndicate 3000's capacity for 2005 is £145m.

Markel Corporation this year celebrates its 75th year in insurance and is the ultimate holding company for Markel's London Market operations.

It is a US-quoted firm capitalised at around $3.5bn (£1.9bn) and wrote gross premiums in 2003 of approximately $2.6bn, and has an AM Best rating of A (excellent).

Kevin Pallett, managing director of Fusion Insurance Services, points out that Lloyd's is the second-largest commercial insurer in the world and, while it has suffered its traumas, the fact remains it still stands and provides very strong security. "In light of more recent company failures, that has to be an important aspect for brokers to consider," he states.

"If you compare the impact of company failures such as those of Independent, where policyholders were left without cover, the failure of any individual syndicate would be backed by the Central Fund."

Fusion is fairly unique in that it operates direct with UK provincial intermediaries on a regional basis, rather like a traditional non-Lloyd's insurer, yet all its capacity is provided in Lloyd's. Pallett says it is a structure that works well. "Our brokers get the benefit of both worlds - the strength of Lloyd's with a regional presence. Provincial brokers have always been able to place commercial business in Lloyd's via a Lloyd's wholesaling broker, but our model overcomes the traditional problems of brokers only having remote access to decision-makers; slower documentation and variable service is inevitable when another party is inserted in the chain between insurer and the broker." Fusion specialises in property package business in the mid-corporate range. "Our underwriting decision-making, surveyors and business development people operate at a local level and aim to be always on hand," explains Pallett.

As for assessing the security of individual syndicates - especially the newer ones versus the longer-established syndicates - the rating agencies provide one method. Richard Tolliday, chief executive of Omega Underwriting Holdings, says: "The ratings provide a valid means of differentiating between syndicates, particularly AM Best, which applies the same methodology as is employed in all its insurance ratings. Some other rating agencies have methodologies specific to the rating of Lloyd's syndicates."

In December 2004, Omega announced its capacity level for 2005 for the Omega Syndicate 958, coincidental with AM Best reaffirmation of its A (excellent) rating combined with an issuer credit rating of A+, which Omega says ranks it above the Lloyd's market as a whole.

"The rating reflects the syndicate's excellent prospective underwriting performance and strong profile in certain specialist markets," explains Tolliday. "They believe that our strict underwriting approach, conservative reserving policy and cautious approach to reinsurance are likely to lead to a continuation of our excellent long-term performance record. Omega has a record of unbroken underwriting profit since the syndicate's formation for the 1980 year of account." Omega is a privately owned, specialist insurer focusing on short-tail commercial lines such as non-marine property, general liability and motor.

It could be argued that the relative security of individual syndicates - new and old - is not so necessary from a broker's perspective because all syndicates are underpinned by the Lloyd's Central Fund. However, Murphy adds that any prudent broker should consider the individual syndicate's financial backing, track record, previous results and legacy issues as part of the development of a long-term relationship between underwriter and clients.

In addition to looking at rating-agency views, there is a range of 'soft data' that brokers can look at when assessing the attractions of syndicates to carry their clients' risk. Albanese says that, as well as including their own experience of dealing with syndicates, brokers will also be interested to know and understand the financial strength and reputation of the organisations that stand behind them.

The exodus of insurers from Lloyd's into the company market place seems not to have placed any stress on the syndicates that remain. Hiscox is an organisation that operates both as a Lloyd's syndicate and as an insurance company. The latter was set up to fill gaps in the provincial broker market not necessarily covered by the syndicate, and to provide a regional presence for non-Lloyd's brokers with its offices in Glasgow, Leeds, Birmingham and Maidenhead as well as London. So, the syndicate and the insurance company generally have different brokers. The covers provided in Lloyd's include aerospace, bloodstock, commercial binders, contingency, fine art, high-net-worth household, kidnap and ransom, media, personal accident, property and technology risks. The major fund provider is the Hiscox Group itself and 2004 capacity was £847m.

There are advantages for brokers in being able to place business through both Lloyd's and the company market where the same organisation operates in both sectors. For example, Markel International's underwriters are able to write business through Markel Syndicate 3000 at Lloyd's and Markel International Insurance, depending on which vehicle best suits the need of the broker and their clients.

Another departure from Lloyd's in recent times is that of many former motor syndicates to Gibraltar. As part of Cox Syndicate Management, Equity Red Star is now the largest motor syndicate in Lloyd's, and probably also the oldest, having many years ago acquired the Kinloch syndicate, believed to have issued one of Lloyd's very first motor policies early last century.

Underwriter Ray White confirms that this kind of longevity brings with it a great deal of experience when writing a diverse range of motor risks including specialist vehicles and fleets, plus other classes such as household, personal accident and motor breakdown. Having witnessed the departure of many fellow Lloyd's motor syndicates to Gibraltar, White feels that it is disappointing to have seen so many leave, but confirms that this migration does not create any operational problems for Equity Red Star. The 2005 capacity is £433m.

The question of whether to place business in Lloyd's or elsewhere may sound rather academic when talking to any Lloyd's broker - that, after all, is what Lloyd's brokers do - but Toby Esser, group chief executive officer of Cooper Gay, says that, while they have been loyal over the years, he does not feel that loyalty has been entirely repaid. And, while it still favours Lloyd's, the company market is now used somewhat more than it may have been in previous times. "Lloyd's is still a good market place. The abilities and skills that you find there are the equal to, if not better than, any others anywhere in the world. The arrival of the Franchise Board is mostly a good event, promoting more professionalism, which the market needed. However, the difficulty lies in the fact that it represents Lloyd's itself and not the capital behind it. That demarcation sometimes leads to conflicting aims."

Cooper Gay is a Lloyd's broker dealing in wholesale, reinsurance and some non-UK niche retail business and is represented in 23 countries throughout the world. The business is mainly property and catastrophe-driven. Nearly one-quarter is marine, mainly in Germany, while special risks such as professional indemnity, directors & officers' and political risks account for around 10% of the total account, currently running at around $100m.

It is a private company and is owned by its working directors.

"Above all, Lloyd's must never lose its entrepreneurial flair - that is what it is good at," says Esser. "It must maintain its creative underwriting talent, rather that going down the route of underwriting out of a manual.

Finally, once it can agree on and harness the benefits in technology that is already available, then Lloyd's will drastically improve its efficiency and become considerably more profitable."