When Richard Ward took up the helm as chief executive of Lloyd's on 24 April 2006, expectations were high. The market faced numerous hurdles and all eyes were on Ward to see how he would tackle them. Now a year into the role, Nick Thorpe gets the low-down.
Nick Thorpe: You're considered something of an innovator given your past successes at the International Petroleum Exchange (IPE). What strengths and experience do you believe you've bought to Lloyd's?
Richard Ward: I am flattered by the innovator reference! I think what I did with the IPE was to understand what the market issues were that they needed to address, understand where business was going, how to respond to competition and then implement business solutions accordingly. So I think my strengths are an ability to analyse a market position, effect future direction and implement solutions to get us there. Of course, in this day and age technology is an integral component of that and its important to use technology to improve business processes, open up market access, reduce costs and respond to competition.
NT: Is there anything you know now that you wish you'd known when you started the job?
RW: I wish I had understood more about the insurance industry when I started because it has been a steep learning curve. It is a complex business.
NT: Moving on to the results. Obviously 2006 was a wonderful year, with a great combined ratio. I love that you gleefully pointed out that it was three percentage points below that of the Bermuda market.
RW: Yes we have had a very good year. £3.7bn profit, combined ratio of 83.1%, outperforming all our peer groups and yes we have outperformed Bermuda, looking at the average costs of the Bermudian-established insurance companies compared with what we have achieved in the Lloyd's market. It was a pleasing result that reflects the diverse portfolio that we operate at Lloyd's, it reflects good underwriting from our underwriters, but we can't ignore the fact it also reflects a very benign claims season on the back of an extraordinary loss in 2005. So we have had strong market conditions in certain classes of business with no major claims to speak of, and that has contributed to our results.
NT: How has the reinsurance deal between Equitas and National Indemnity strengthened the market?
RW: That has had a very positive effect. We had little to no part to play in that deal, all credit goes to the Equitas management for putting that transaction together. But quite clearly from a Lloyd's perspective it enabled us to cut that link and to really focus on the future, rather than being pulled back by the problems of the past. So we are very pleased to see that transaction go through and to focus on looking forward, and very pleased that the rating agencies have also recognised that. It's wonderful to get an "A+" rating from S&P in recognition of the Equitas transaction but also in recognition of a lot of other things we have achieved at Lloyd's. And I'm very pleased to see that S&P refered to the "unstoppable momentum" behind business process reform.
NT: What would you like to see the market achieve in 2007?
RW: I'd like to see significant progress made on the three key process reform initiatives that we are driving. Electronic claims, accounting assessment, and what we call the "de-vanning" of accounting assessment, ie to cut out the transportation of paper (by van) between here and our back-office processing provider Xchanging. And while I'm very pleased that we have hit and surpassed our FSA targets, I'd like to see contract certainty become embedded in the business as part of usual activities. We are actually rolling out a process called Pre-bind Quality Assurance (PBQA), which is part of the contract certainty initiative. It's all about looking at the quality of the contract, not just the boxes you've ticked, but asking if they are the right boxes. We will combine that with contract certainty to ensure that all the necessary checks are made.
NT: What market achievements in the last year are you particularly proud of?
RW: I'm very proud of things that have happened where we can't necessarily claim the credit. The Equitas deal and the financial results were very much milestone events for us. I'm pleased with the way in which we have built up the Central Fund. I'm pleased with the standards we have rolled out across the market: underwriting standards, claims standards, risk management standards. They're all about raising the standard of performance in our market. I'm pleased with the way in which the underwriters have shown discipline in focusing on underwriting for profit and I think that will continue through to 2007, when it will become more critical. I'm also pleased with the progress we have made in making Lloyd's an easier place to do business, so removing a lot of the complexity and making it easier for brokers to access the market. And I'm pleased about the progress we've made in business process reform as recognised by S&P. Also with the progress we've made around claims, and accounting and settlements, and getting those repositories in place. Finally, I'm also really pleased about our progress on the market access side.
NT: Following the successful launch of Lloyd's China in Shanghai, are there plans to expand further into Asia?
RW: I was out in China last week for the opening of our Shanghai office, our paperless Shanghai office I should add, as it is a completely automated office using RI3K and Genius (Xchanging's processing software). I'm also pleased with the progress of Lloyd's Asia, which is an interesting business model. We're effectively creating a marketplace in Singapore in the same way that we have a market here. So the focus for us at the moment in Asia is building on the Singapore operation and the Shanghai operation. There are clearly other opportunities and we will continue to look at those with our managing agents, but the focus at this point is on Shanghai and Singapore.
NT: How significant was it that the FSA applauded your contract certainty efforts?
RW: It was really very important for us as a marketplace and for the UK insurance industry, to make sure that we did actually exceed those targets so the regulators could say: "Well done guys". Contract certainty to me just made good business sense. I think the fact that we have done this here in London enables us to provide leadership to the rest of the industry globally and it is a differentiator and therefore a competitive advantage for London and for Lloyd's.
NT: Given your support of automation in the market, do you think this success with contract certainty bodes well for the future?
RW: Contract certainty is a good indication of how the market can work together when given a common goal. It shows we can work together as a marketplace to drive through performance enhancements and change. The Market Reform Group is still in place and we will continue to discuss market-wide initiatives that will benefit all of us.
NT: What is your take on the London versus Bermuda debate (which granted, is often media-fuelled)?
RW: It's not "Bermuda versus London" or "Bermuda versus Lloyd's". It is "Bermuda and Lloyd's", as they are complementary markets. Lloyd's specialises in writing specialist risks and in writing a very diverse portfolio of risks. It enables syndicates to operate within Lloyd's and leverage off our Central Fund and enjoy the "A+" rating that we now have. And in doing so they are able to write risks with less capital than they would actually require in Bermuda. Bermuda is more monoline risks, its more big ticket risks, it's not as diversified as the London market and it offers different opportunities. So the two markets coexist. We have seen our capacity go up year on year, and in Bermuda their capacity is also going up. What we are actually seeing at the moment, given the success of Lloyd's, is a lot of interest from Bermudians in coming to Lloyd's.
NT: What characteristics should Lloyd's aim to retain?
RW: We have some great underwriters in our market who are able to write extraordinary risks, innovate our products and frankly make decisions in a far more timely fashion than you'd probably find in any other marketplace. These are the key aspects of our market that we have to retain, if we can. We mustn't lose that sense of innovation and that entrepreneurship that we have with our underwriting community.
NT: How much time do you spend on the underwriting floor talking to the underwriters and brokers?
RW: It's a very important element of my job. Particularly as I'm new to the insurance industry. So I actually spend a lot of time in the underwriting room and a lot of time with the broking community trying to understand the issues that they're having to deal with so that we can have a better understanding of what we need to do to improve the flows of business into the Lloyd's marketplace.
NT: 2006 was a big year for non-traditional reinsurance and retrocessional products. With Lloyd's setting up its own sidecar Thunderbird Re in Cayman, does the market see a future in this type of product?
RW: We established Thunderbird Re in response to the demand we were hearing from the marketplace back in 2006. As it turned out there was then sufficient reinsurance capacity in 2006 that meant that vehicle was not used. If the market conditions change that makes that product attractive, then we can make Thunderbird Re available to the marketplace - but at the moment I think there's sufficient reinsurance capacity in the marketplace and we don't necessarily need to use it.