Articles - Lloyd's - Turning The Key


In the second article of our series, Zoe Bolton interviews Stef Raftopoulos, Managing Director of Athito. This follows on from last month’s interview with Lawrence Po-Ba of Securis, which focused on the attraction of Lloyd’s of London. Stef Raftopoulos is the go-to person for start-ups in Lloyd’s and those syndicates looking to ‘spinout’ of their turnkey arrangements;

 Bolton Associates enjoys a strong relationship with the firm, providing specialist actuarial headhunting services as required.This article covers the challenges for Lloyd’s entrants, the process surrounding this and the importance of a key Chief Risk Officer or Chief Actuary hire.
  
 ZB: What is your experience with working for Lloyd’s of London?
 I started in Lloyd’s in 1989 working as a broker for 8 years before joining QBE’s managing agency. Athito was formed in 2003 to deliver projects and change to the insurance market and for about the last 10 years we have been involved in start-ups at Lloyd’s.
  
 ZB: What role does Athito play in Lloyd’s and how has the company evolved?
 We’ve grown to employ around 40 people and roughly half of our business comes from either forming new Syndicates or SPS or designing, building and obtaining regulatory approval for syndicates coming out of “turnkey”. We’ve managed the exit of almost all of the syndicates from turnkey since Barbican; these syndicates now account for around £1bn of Lloyd’s capacity.
  
 ZB: What are the main challenges for new entrants into the Lloyd’s market?
 Entering Lloyd’s as a new syndicate is expensive, time consuming and complex. Typically a new syndicate will take a year to establish. A new managing agency is substantially more complex and requires formal approval of Lloyd’s, the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) with a lead time of around 18 months, perhaps longer.
  
 ZB: What is the most popular route into Lloyd’s chosen by prospective entrants?
 The turnkey market is very active; there are around a dozen syndicates under third party management currently, with more in the pipeline later this year and even more going live in 2016. Every new entrant in Lloyd’s since 2010 has gone down the turnkey route and it is Lloyd’s preferred method for new businesses to enter the market. A new syndicate must be sponsored by a managing agent to be able to enter the market. There are some managing agents who specialise in third party syndicate management such as Asta, and there are other managing agents that have provided syndicate management for third party businesses such as Catlin and their management of China Re. We have worked with all the turnkey providers, and undertaken projects with the majority of managing agents so we have a detailed working knowledge of the markets and their skills.
  
 ZB: What is the next step after entering turnkey?
 Syndicates will stay under turnkey for around 3 years. After the first year or so the management team in the syndicate will turn their attention to exiting the turnkey arrangement as these projects take up to two years. The project to form a new managing agent starts with a high level design of the business considering any unique elements of the client, for example their scale and growth targets, distribution model, whether they can utilise elements of their wider group for services, specific governance requirements and any other aspects. Budgets and detailed planning follows, based on the target operating model we define, working with the client’s management team.
  
 ZB: When does engagement with Lloyd’s start?
 Engagement with Lloyd’s will start once these high level models are defined and we work closely with the Lloyd’s New Entrant Team, run by Bob Stevenson and Nigel Williamson, to test various aspects of the operating model. A key aspect of the engagement with Lloyd’s is around the staffing model. It’s important that a balance is met between having resources dedicated to the managing agent and the reliance on any resources provided by a corporate parent or outsourced providers. This is especially important if the resources are based overseas, as Lloyd’s, PRA and FCA all require evidence that adequate resources to manage the business are in place – and broadly speaking these resources should be based in the UK.
  
 ZB: This is, of course, a highly regulated industry. What regulatory requirements face entrants?
 The regulatory assessment process consists of several stages including High Level Pitch outlining the business, the New Entrant Assessment Group – during which Lloyd’s, the PRA and FCA review the application followed by a formal submission to the PRA and FCA that often consists of around 1,000 pages. This detailed submission is reviewed by the PRA and FCA over a period of 6 to 9 months and assessed against Threshold Conditions; in parallel Lloyd’s undertake a detailed assessment against Minimum Standards through a process that lasts between 2 to 3 months. All in all the process to obtain approval for a managing agent usually takes over 18 months – with regulatory timescales forming the critical path.
  
 ZB: Are there any specific challenges in the assessment process which has raised issues with your clients? How do you get around these challenges?
 One of the key issues our clients face during the build process is the tension created between needing to build the application between 9 and 12 months before approval; attracting staff to a business that is not approved and absorbing salary costs to build and parallel run the business, whilst also paying for the services of the turnkey provider who retains regulatory responsibility for the business until the new managing agent is approved. This dual running is costly and complicated but a necessary evil to provide assurance to all the regulators that the team and business model are fit for purpose.
  
 ZB: Where does the actuary come in all this? What skills does the actuary bring to the Lloyd’s table?
 In the recent past, particularly since the implementation of Solvency II, the role and contribution of actuaries to insurers has evolved significantly. Actuarial functions have a fundamental role in supporting decision making and in exploring alternatives to optimise the performance of syndicates operating within the Lloyd’s market. The successful actuaries that we see in the market provide a balance between technical knowledge and business understanding to identify opportunities and threats to steer the business towards successful outcomes and effective strategy management. Their role is no longer exclusively analytical and they need to engage with their internal customers actively to understand their needs and construct meaningful analysis tailored to the wide range of information available within a Lloyd’s syndicate. The profile of actuarial professionals in Lloyd’s is becoming increasingly relevant and it presents attractive opportunities for those individuals with the skill to transform and convey complex analysis into clear guidance and decisions.
  
 A clear example is the increasingly important role of Chief Risk Officers across the market. The good Chief Risk Officers have the skill to convey complex and, in many cases, difficult messages in a way that brings the organisation together to create common understanding and solutions to business situations in a practical manner. These are difficult attributes to find, let alone in single individuals, which leads to an increasing demand for this niche set of expertise and behaviours.
  
 ZB: And finally, what would you say the main things that start-ups should consider?
 Lloyd's is a specialist market and with that market comes nuances and the need to plan carefully. It will take longer than you think, and it is not an undertaking for the fainthearted from both an effort and cost perspective. Having the right people is key and there are no shortcuts. But with a clear plan and commitment, establishing a business at Lloyd's will reap rewards in the long run.
  

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