The Lloyd's market has always given companies the opportunity to diversify their risk base and gain access to new markets and new sources of business. Bermuda was one of the largest sources of the new investment Lloyd's received once corporate capital was admitted in 1994.
Over the past two years the influence of Bermudian companies on the Lloyd's market has continued to grow, both through managing agents, who manage the affairs of syndicates, and in the syndicates themselves via affiliated limited liability corporate Names. ACE (through ACE Underwriting Agencies) and XL Capital (through Brockbank Syndicate Management ) now back two of the top three individual managing agencies based on 2000 managed capacity, with London based Limit Underwriting the third.
The merger and acquisition activity, noted earlier in this report, has played a major part in the increase in Bermuda's share of total managed capacity. Bermudian insurance companies control approximately 24% (1998 - 18%) of the £10 billion (or approximately $16 billion) capacity at Lloyd's for the 2000 underwriting year in their role as principal backers of managing agencies.
In addition to controlling the managing agents, these companies also provide underlying underwriting capacity as corporate members. Corporate capacity in Lloyd's has risen consistently since its introduction in 1994 when 95 members controlled 15% of the market, to 2000 where 80% of the market is writing with this limited liability structure, through 668 members. This includes 512 “conversion vehicles” for those individual Names who are converting to limited liability status.
Bermudian companies provided £1.8 billion ($2.91 billion) of the 2000 underwriting capacity, which is more than 18% (1998 - 11%) of total market capacity. The degree of involvement by the Bermuda insurers in the Lloyd's market is evidenced by the proportion of their total premiums written, generated through the Lloyd's syndicates, as shown in the chart overleaf. Some concerns have been raised in the light of bearish Lloyd's market underwriting projections for current years that this concentration may have a significant, negative impact on Bermudian companies. Ultimately, the question may be to what extent their GAAP earnings already reflect these results.
Although Brockbank, XL Capital's managing agent, divested itself of its motor business interests (Admiral Insurance Services Limited and Zenith Insurance Policies) in management buy-outs during 1999, it did expand its aviation lines with the conclusion of a long-term producers' agreement with W Brown & Associates to take effect from 1 January 2000. Although the company is expecting some reductions in net premiums earned as a result of the sales, it does not expect overall profitability to be significantly affected. Through its acquisition of NAC Re, XL Capital now also controls Denham Syndicate Management, which has managed capacity of £66.7 million. Denham specialises in liability coverages.
ACE has consolidated its Lloyd's interests into ACE Global Markets, which now encompasses the former Charman, Methuen and Ockham World-wide agencies. ACE's acquisition of Capital Re also brought with it £10 million capacity from managing agency RGB Underwriting Agencies.
Trenwick acquired Chartwell Managing Agents in October 1999, which has managed capacity of £232.9 million in 2000. Trenwick's subsequent merger with Bermuda's LaSalle Re will make the combined entity a significant force in the Lloyd's market.
Stockton Re's acquisition of Crowe Insurance Group (covering six syndicates and two corporate capital vehicles) in March 1999 brought with it managed capacity of £236.0 million in 2000. The amount of corporate capacity provided by these two vehicles was £219.9 million (representing 93% of the agency's managed capital). Stockton Re believes the acquisition brings it closer to the London markets without competing with its existing brokered client base.
PXRE's re-domestication to Bermuda contributes a further £175.1 million in managed capacity through the inclusion of PXRE Managing Agency. PXRE Managing Agency provides management and start-up consultancy services to corporate and captive syndicates at Lloyd's. PXRE also trades in the London market through Lloyd's syndicate 1224 writing coverage including property, marine and aerospace, accident, health, surplus lines and personal indemnity, and provided £35 million (20%) of corporate capital to PXRE Managing Agency.
Octavian Syndicate Management is the tenth largest managing agent based on 2000 capacity and Markel/Terra Nova presently provides 89% of its total capacity, representing aligned capacity of £302 million (1998 - £298 million). Business written through the syndicate includes, but is not limited to, the major marine and aviation risks, oil and gas, professional indemnity, motor, property, personal accident, specie, cargo risks, excess of loss, contingencies and financial institution risks, as well as facultative and treaty reinsurance of various books of business.
Western General Insurance has an approximate 67% interest in Catlin Westgen Holdings, the principal operating subsidiaries of which are Catlin Underwriting Agencies, a managing agent, and Catlin Westgen. Business classes underwritten by the syndicates managed by Catlin Underwriting include energy, professional indemnity, financial institutions, specie, cargo, hull and war and allied perils. They also provide reinsurance of motor, property and catastrophe cover. AEGIS set up a new syndicate at Lloyd's, AEGIS Energy Syndicate 1225, which started underwriting on 1 January 1999. This is operated through the Whittington Capital Management managing agency, which had 2000 managed capacity of £34.5 million.
The chart summarises the interests of the Bermuda insurance industry in managing agencies, and indicates the syndicates these agencies manage and the business those syndicates write. The corporate members in which Bermudian insurers have an interest provide capital for these syndicates (although not exclusively), and the chart demonstrates some of the businesses which these enterprises have gained access to through their involvement at Lloyd's.