This millennium year for the London reinsurance market has been a relatively good one. Beginning with the relief inherent in the realisation that the Y2K bug was not showing up to the party, and ending with a renewal season that finally marked the end of the soft market in most classes, 2000 has been plump with good news for underwriters everywhere. For London in particular, some major successes were recorded.


Most notable, yet perhaps least lauded, was the burst of new and unprecedented co-operation between Lloyd's, the International Underwriting Association (IUA) and the Lloyd's Insurance Brokers' Committee (LIBC). Their new-found co-operative spirit led to the market's agreement on LMP2001, a set of procedures and protocols which look set to spark the first steps in a much-needed rationalisation of market practice. London has learned, it seems, that times have changed, and that EC3 must change too.

Some said it would never happen. In the summer of 1997, at the annual Skandia debate (now, lamentably, ceased), underwriters and brokers argued the motion ‘the London market never learns'. Proposing, Brian Rothwell argued: “A market is not a learning organisation. It is not even an organisation; it just is. It is not a market's role to think, be proactive or have a vision... There is little room for trust or team playing because internal competition is too great.” The three market bodies have disproved Mr Rothwell. The market has learned to work together in an atmosphere of trust, and the IUA/Lloyd's Forum, which prepared the LMP2001 proposals, has demonstrated great vision, albeit a reactive one.

Co-operative reform of practice has been matched by similar pronouncements about rationalisation of business processing. Following the merger of the London International Insurance and Reinsurance Market Association (LIRMA) and the Institute of London Underwriters (ILU) in 1998, giving the IUA 100% ownership of the London Processing Centre (LPC), the London company market's premium and claims clearing house, speculation about the potential merger of LPC with its equivalent bureau at Lloyd's began almost immediately.

After numerous statements of intent by IUA Chairman Tim Carroll (re-elected to the position mid-year), a definitive announcement was made in late October. A new company is being formed by merging the LPC with the Lloyd's Policy Signing Office (LPSO). Working for both the companies and Lloyd's, the new bureau will process annual transactions worth more than £20bn, making it one of the largest insurance service operations in the world. A third party, Xchanging, will have joint ownership and make a substantial investment. In addition, moves are already underway to bring LPC's Claims Loss Advice and Settlement System to Lloyd's, and Lloyd's Outwards Reinsurance System to the companies. So much for Mr Rothwell's assertion that there is little room for team playing in London.

Lloyd's evolves

Meanwhile, Lloyd's momentous change has continued. Perhaps the most important development has been the defeat of the Jaffray fraud case, which saw a band of refusnik Names - those who would not sign up to Reconstruction & Renewal - bring charges of fraud and misrepresentation against the old Committee of Lloyd's. In November, the High Court cleared Lloyd's and its governors of the charges, hopefully putting to rest another chapter in the chequered history of the market. The Names had spent months arguing that throughout the 1970s and 1980s, Lloyd's hid from them the true likely cost of asbestos-related claims. Ironically, while the Names stated their case in London, US courts were awarding new, significantly higher, asbestos-related claims - a development which some fear may threaten the future solvency of Equitas, the run-off reinsurer that assumed all of Lloyd's 1993 and prior liabilities.

Other vestiges of Lloyd's troubled times have eased. In July, when Chairman Max Taylor made a surprise announcement of his early resignation, a switch of the chairman's role from full time to its historic part-time commitment was also announced. Sax Riley, former head of Sedgwick, is to take the helm. The development is significant: it marks the end of the need for hands-on executive crisis management on Lime Street. Another Lloyd's regime has also ended: the market no longer regulates brokers. On 3 July the responsibility for broker regulation was passed from Lloyd's to the General Insurance Standards Council (GISC), the new UK broker regulation body supervising all UK intermediaries. From January 2001, any broker anywhere in the world will have access to the Lloyd's market, so long as it meets accreditation criteria in line with those of GISC or an equivalent overseas organisation.

As access regulations were changing, new markets were forming at Lloyd's, ushering in a revival for traditional capacity providers. Two major new syndicates were formed for the 2000 year of account, both promising to be important reinsurance underwriters, and each bucking the trend by eschewing the prevailing move towards aligned capacity in favour of private capital. The first is Managing Agency Partners' syndicate 2791, encompassing many underwriters from the old Harvey Bowing syndicate, led by liability underwriter David Shipley, and attracting Raymond Dumas, former active underwriter of syndicate 1028 and senior partner in Wellington, as a non-executive director. The new operation will have a risk-based capital ratio of 65%. Second is Cathedral Capital's syndicate 2010, an excess-of-loss and aviation reinsurance syndicate headed by former Lloyd's Deputy Chairman Elvin Patrick. Its more volatile reinsurance portfolio has attracted an RBC of 114%.

Boardroom drama

Lloyd's saw a major boardroom drama during the year as Limit, the spread vehicle that had acquired the Bankside and Janson Green managing agencies, was put into play in late 1999 by an aggressive takeover offer from QBE, the expanding Australian insurer. Limit's directors pledged to defend against the bid and cobbled together a merger plan with rival managing agency, Wellington. The deal would have seen Lloyd's two famous Agnews (Ian Agnew, Chairman of Wellington, and Jonathan Agnew, Chairman of Limit) come together. In an unrelated move (Wellington insisted), it relocated its offices from Two Minster Court, adjacent to the London Underwriting Centre, to Leadenhall Street, in the very same building in which Limit had consolidated its London market business.

The merger was not to be. Ultimately QBE raised its offer, valuing Limit at £375m, and the board recommended to shareholders that they accept. Jonathan Agnew announced his resignation and subsequently swathes of active and senior underwriters and other personnel fled the agency. The sale of Limit marked the end of the listed spread vehicle, and although its passage went largely unnoticed, another chapter in Lloyd's history was completed. To end the drama, QBE mooted the idea of moving its head office from Australia to London, putting it much closer to the source of well over half of its premium income.

Later in the year CGNU, as part of its withdrawal from London market business, shut two of the syndicates in its Marlborough managing agency, then flogged the business to Berkshire Hathaway Group, part of Warren Buffett's insurance empire. The largest component, syndicate 1861, had been formed for the 2000 year of account with capacity of £150m to assume the marine business of CGNU's predecessor company Commercial Union, which had previously been written through the ILU. In 1998, the book yielded premium of about £126m net. However, CU's marine portfolio was once the most significant outside Lloyd's, reaching £447.5m net in 1994. On 21 February, when CGU and Norwich Union announced their merger to create the world's fifth-largest insurer and a new British champion, the new CGNU pledged to focus only on life and general insurance markets in which it can achieve a top five position. As promised, the company abandoned its £80m book comprising the overseas risks of about 150 UK-based multinationals, completing its withdrawal from the London market.

US insurer Markel became the new owner of the former Octavian syndicates, which it acquired when it bought the UK-cum-Bermudian insurer Terra Nova, the original buyer of Octavian, in March of 2000. The US company has pledged to pull the agency into shape, and has renamed the renowned RE Brown syndicate Markel 702, following the high-profile underwriter's retirement. Jonathan Jones, former underwriter of Markel's £40m marine syndicate 329, parted ways with his new bosses after rumoured disputes over approach, thus ending Mr Jones' foray into the fixed premium protection & indemnity (P&I) market, where he had achieved reasonable success, if not popularity among his peers, most of whom have big lines on the International Group of P&I Clubs' enormous excess of loss programme.

The year saw multitudes of other changes at a variety of syndicates, some of which are worthy of note. Mark Brockbank left the agency that bears his name, and a mass of further defections followed, including long-time underwriter Martin Reith, who resigned as Managing Director, hopefully to return to underwriting. Nick Metcalf took over as active underwriter of its flagship syndicate 861, and Bermuda-based owner XL Group re-branded the operation XL Brockbank. Meanwhile, Cox announced its complete withdrawal from marine and energy underwriting (excluding its hugely profitable nuclear syndicate) after winding down the book over several years. US reinsurer PXRE has abandoned the market after being stung by capital loadings (imposed by Lloyd's on PXRE and 11 other agencies' syndicates), after loudly and repeatedly stating it had no intention to do so. Sorema, the reinsurance subsidiary of French farmers' mutual Groupama, launched a Lloyd's syndicate, as did Copenhagen Re.

Companies coming

In the company market, acquisitive Rhine Re, now renamed Alea, bought up Imperial Fire & Marine Re, the London market reinsurer with ties to the east that was launched in 1996, and took on its founder, Loay al Naqib. The Kholberg Kravis Roberts-backed venture gives Denis Purkiss and Stephen Cane a new platform, after the failure of their snubbed management buy-out attempt that followed the decision of Zurich to sell Zurich Re London, the company the pair ran together. Aviation consortium British Aviation Insurance Group bought its US rival Associated Aviation Underwriters, and Axa consolidated its London market holdings, Axa Re and Axa Global Risks, into a single operation.

Unionamerica, the London market reinsurer acquired by The St Paul when it bought the MMI companies, was placed into run-off. Bermudian IPC Re closed its London market office. ARIG Re pulled out of the London market reinsurance business, as did Chiyoda Europe and CIGNA Re, one of the few p/c subsidiaries of the eponymous US giant that was not sold to ACE of Bermuda. The departure left a gaping hole in the London accident and health market, which was quickly plugged, in part by the formation of Momentum Underwriting Management, headed by Christopher Branch, former managing director of Cigna Re Europe, who will underwrite on behalf of Ace Europe - the former Cigna operation.

The IUA made good on its commitment to the marine market, assisting in the presentation of an extremely popular meeting of the International Union of Marine Insurers, which by rotation was held in London in 2000. It offered London underwriters a genuine opportunity to talk up the market among themselves, as the world's centre of gravity for marine insurance finally said enough is enough. In other markets too London began to lead the way up, in time, one hopes, to prove that another lesson has been learned. This time around, the pain should be less swingeing and the casualties much fewer in number.

So, in 12 months marked by a market upswing and other momentous developments, what will be most remembered from London's millennium year? In a move which will truly change the London reinsurance landscape, Swiss Re received the nod from John Prescott, Secretary of State for the Environment, Transport and the Regions, for its ‘erotic gherkin' building (that's pickle to our US readers) on the site of the bombed-out Baltic Exchange. Alas, in a year brimming with positive London market news, this is perhaps the only development that will be widely remembered.

Adrian Leonard is a freelance insurance journalist and a regular contributor to Global Reinsurance.