Lloyd's is looking to further grow its European business.
For many people, Lloyd's of London remains the archetype of all that is British. In my view, that's a serious mistake to make and fails to recognise that of all the major international insurers, Lloyd's is the one that can truly claim the appellation ‘global'.
Another commonly-made mistake is to assert that Lloyd's is only strong in those areas of the world where English is the dominant language. Wrong again: while it's true that the former British colonies were the heartlands of Lloyd's business, today the Lloyd's name is as familiar in Germany, France, Italy, the Far East and China as it is in South Africa, for example.
That phrase, ‘the Lloyd's name', is also something that many people outside the London market fail to grasp the full importance of. Lloyd's, in its truest sense, is a name, a brand. Thinking of it purely as an insurer negates the fact that Lloyd's is, in reality, a franchise operation. Operating a business at Lloyd's is the gateway to direct business in 60 countries and the ability to accept business in one form or another from over 120. Before we look in detail at Lloyd's operations in Europe, it is vital to bear that fact in mind. It is also critical to remember that in early 2000, Lloyd's strategic plan, ‘Priorities for Growth', spelled out detailed plans to leverage the Lloyd's brand internationally and look to further develop its network of overseas licences.
Lloyd's involvement with Europe cannot be dated exactly, but in general terms began after the Second World War with the establishment of a full-time office in Paris. More full-time offices followed in Germany, Italy and Switzerland, with part-time representatives established throughout the remainder of the EU. Today, 13% of Lloyd's business originates from Europe (excluding the UK). Major markets are France (£192m), Germany (£177m), Italy (£136m) and Eire (£100m). (All figures exclude motor business.)
Two types of business are conducted by Lloyd's in Europe: establishment, the writing of business in an EU member state via a branch or agency; and services, the writing of business on a cross-border basis.
Having seen steady growth since the late 20th century, the trend continues to be for our business in Europe to expand – markedly in some cases. Last year, for example, Lloyd's business in France grew by a remarkable 28%. General liability business has also seen rises right across the European market.
There are a number of factors underlying these increasingly buoyant market conditions. The European economy is in good shape with low interest rates leading to growth in production and strong financial indicators; reforms in social welfare policy throughout member states are leading to greater emphasis on citizens providing for their own retirements and other welfare benefits; and structural changes in the provision of healthcare are encouraging citizens to seek private medical cover. But it's not just about our being in the right place at the right time. Lloyd's has taken greater advantage of these political and economic shifts than many of its competitors. One factor must be borne in mind, though – rapidly hardening rates in the UK may see underwriters being sorely tempted to shift capacity back to their home market where returns could be greater.
But even taking into account the kind of growth Lloyd's is experiencing in Europe, we believe there is still plenty of scope for expansion in the market, considering the size of the European market against the volume of business we currently generate from it. This is why, over recent months, the worldwide markets team has been involved in creating a medium-term strategy for Lloyd's in Europe.
One of the cornerstones of that strategy has been to identify those markets in Europe where we expect to see substantial expansion. Research suggests that the countries to keep a close eye on will be Spain, the Netherlands and Italy. All three should experience annual compound growth to 2004 of around 6%. Next on the growth hit list is the UK itself on 3% growth, with the very large French and German markets lagging behind in the 1 to 2% region. Although some other markets will experience even greater rates of growth than those mentioned above – Greece and Eire most notably – opportunities tend to be more niche dominated, of interest to a smaller community of underwriters in the market.
So having identified our target countries – Spain, Italy and the Netherlands – the question then arises what we intend to do in relation to them. Principally, the Corporation of Lloyd's, the market's administrative body, will seek to create conditions in which European markets are an attractive business proposition for our underwriters. There are a number of ways in which we intend to do this:
The key here is to remember the reference I made earlier to Lloyd's as a franchise. Our job is to promote that franchise and to help the market make greater use of it. Strong branding, well-developed marketing literature and country-orientated programmes of public relations activity will leverage our brand. This, combined with a global advertising campaign and market events taking place in most European countries, will increase the perception of the global franchise able to tailor its business to the needs of each local market's customers.
In addition to this stream of activity, we will be continuing to develop out network of licences in Europe. Our establishment licence for Spain is due this summer; we have already achieved recognition in Czech insurance legislation, and we are monitoring the situation in Hungary to consider if it will be in our interests to seek a licence there.
Running in parallel with this work is our broker accreditation programme, an activity complimenting our European strategy. From January 2001, any broker meeting certain minimum requirements has been able to gain direct access to the Lloyd's market after going through an accreditation procedure. In May, one French broker, Group Eyssautier, and one Luxembourg broker, SAIL, were among the first groups to be accredited on this new basis. We expect to see an increasing number of European brokers gaining direct access, thus expanding our distribution network throughout the continent. Further accreditation announcements will be made during this year. Another factor which will assist Lloyd's is its early adoption of the Euro currency as one of the twelve major currencies it trades in. Its introduction will streamline accounting processes across Europe and reduce costs in the future.
Another key resource is our representatives themselves. Torquil McLusky, Lloyd's representative in France, has been given responsibility for implementing our European strategy from Paris. We felt it natural that a European initiative should be led from the front line, so to speak. And as far as our German representative Burkard von Siegfried is concerned, these are his views on the issue of Lloyd's in Europe:
“With traditional German insurance market structures breaking up, and consolidation narrowing choices in certain areas, customers need alternatives. German clients and intermediaries recognise the value of a Lloyd's policy and its ability to cater for the challenges of an ever-changing environment. Lloyd's is increasingly becoming a first port of call for insurance professionals in Germany. With all sorts of new risks emerging technically, but also from the viewpoint of new risk scenarios, there are tremendous opportunities for Lloyd's.”
So should there be anyone reading this piece who still clings to the doctrine that Lloyd's can only flourish in English-speaking territories, I have but these few words to say to them: look at the statistics, look at the growth, and look at our proposals for the future. Our market may have been in existence for over 300 years but we still have plenty of appetite for expansion in those markets where our presence can be of benefit. Europe is exactly that kind of market.