Articles - Lloyd's - Attraction, Options & Entry


This series of articles looks at the different options available, how to go about establishing a new managing agency and finally what role the Chief Actuary and CRO should play in a new start-up, and how these roles evolve as the new business grows in stature. In the first of the series, Zoe Bolton interviews Lawrence Po-Ba, Head of Lloyd’s/Specialty at Securis Investments Partners LLP to find out his experiences of working within the Lloyd 's market, his views of new capital entering the market and the different options he can present to his clients.

 As one of the longest standing headhunters in the GI actuarial market, Zoe Bolton, founder of Bolton Associates in 2010, has worked with the majority of existing Lloyd's managing agencies over the years and also with many of the new and exciting businesses who have recently joined the market. From placing the first actuary into the business and building their teams around them, to filling business needs as the actuarial requirements and regulations increase throughout the industry, Bolton Associates offers clients access and introduction to their strong network of candidates.
  
 Over the last few years there have been new entrants into Lloyd's of London, as well as those that have failed to receive that all important approval from the Franchise Board. As requirements become more stringent, new entrants are looking further afield at different ways to gain access to one of the oldest insurance markets in the world.
  
 ZB: In what capacity do you work with Lloyd’s today?
 LPB: I am Head of Lloyd’s/Specialty at Securis Investments Partners LLP, an Insurance Linked Securities Asset Manager. I joined in August of last year and act as Portfolio Manager for Securis’ Lloyd’s Corporate Member (LCM) Fund, providing Third Party
 Capital to Syndicates.
  
 ZB: Have you always been in (Re)insurance?
 LPB: Previously, I was Lloyd’s Client Manager for the French Reinsurer, SCOR SE, responsible for their Corporate Member at
 Lloyd’s from 2007. At SCOR, I was also a Senior Underwriter for Structured Risk Transfer transactions emanating from the London Market, including Lloyd’s Capital gearing Quota Shares and Excess of Loss structures. I have been in the market for 20 years; I spent time as an underwriter with Swiss Re and Hannover Re, and also as a broker with Aon Risk Consultants.
  
 ZB: Having spent over 20 years in insurance, what do you think is the continual draw of the Lloyds market?
 LPB: The Lloyd's Market is a recognised market leader in specialist classes of business and is a unique arena to access global
 insurance and reinsurance risk. Many believe that Lloyd's is experiencing a potentially exciting growth and development phase in the future, especially in the developing nations (Vision 2025) and that Lloyd's position and reputation will continue to be supplemented by a high density of underwriting, technical and support functions present in London, allied to a strong and stable rating environment, with the credible oversight of the UK PRA regulatory regime.
  
 ZB: What factors would you say contribute to the attractiveness of the Lloyd’s Market?
 LPB: Well, the key factor is the strength and brand reputation that Lloyds possess – it is renowned the world over.
 There is also the factor of access, which with Lloyds is second to none. Bolstered by a strong Financial Security Rating (AM Best: A Rating; Fitch: AA-; S&P: A+) underpinned by the Central Fund (Lloyd’s Chain of Security), Lloyds provide access to major insurance markets and an expanding licensing network. The financial rating also helps attract and retain specialist insurance business, which is little seen elsewhere, offering a wide range of specialist underwriting & bespoke (re)insurance solutions.
 Looking at the building blocks of the market, not only is the capital efficient framework driven by the benefits of mutuality, but the infrastructure supports the subscription market, the provision of tax and regulatory reporting and the ability to benefit from a Solvency ll ready environment. In short, Lloyd’s permits innovation and fosters an entrepreneurial culture under a robust market oversight regime.
  
 ZB: What routes can be taken to establish a Lloyd’s underwriting business?
 LPB: There are a number of paths which can be taken, such as the ‘traditional’ build option where you establish a member, then establish your own syndicate under 3rd party management and then finally establish a managing agent.
 It should be noted, that it is possible to simultaneous apply for your own syndicate, as well as a managing agent, but this route is particularly difficult and has not been achieved for the last few years.
  
 There is also the Partner Option where you start off in the same way as the traditional build with establishing a member, support a syndicate, then establish a Special Purpose Syndicate (SPS) before the 3rd party management and managing agent set-up.
 The Special Purpose Syndicate (SPS) Option: Establish a Member -> Establish a Special Purpose Syndicate (SPS) -> Establish own syndicate under 3rd party management -> establish managing agent
 
 Some Groups, for example, traditional Names, institutional investors, & investors in ILS Managers, such as Securis, may be satisfied by investing by way of capital provision to third party syndicates, without forming their own syndicates & taking one of the above routes to establishing their own Lloyd’s platform.
  
 A recent development in the Market has been for Managing General Agents (business entities appointed by Insurers/Lloyd’s Syndicates to underwrite on their behalf) to apply to form a Syndicate at Lloyd’s, showing a requisite track-record of profitability. It will be interesting to see whether this will become a growing trend in the Lloyd’s market.
  
 ZB: What approach in to Lloyds did Securis take?
 LPB: Securis went with an option taken similarly by traditional Names and some Trade Capital players, in the form of investors, through a Fund, providing capital to syndicates. One of the previously mentioned routes - partner, traditional, SPS - can then be taken to establish a Lloyd’s platform at some stage in the future, if interested.
  
 ZB: What made Securis undertake the journey into Lloyds?
 LPB: Securis already had a significant amount of experience withinthe (re)insurance industry through investing in Insurance Linked Securities since 2005. Consequently, it had an in-depth understanding of the market, as well as insight into the Lloyd’s Market with access to well established, quality syndicates. A discussion with existing and prospective ILS investors, a new Securis Lloyd’s Corporate Member (LCM) Fund was launched in Q1 2015.
 
 The idea behind the Securis LCM Fund was to construct a diversified portfolio more so than, for instance, typical "mono-lines" seen elsewhere in the market and which they we believe will carry lower correlated risk and have less dependence on the traditional (re)insurance cycle. Furthermore, it believes that a key benefit that Lloyd's provides is the added franchise oversight of the Market, and the approval of individual syndicate business plans.
  
 ZB: What does the Fund afford investors?
 LPB: The Fund supports capital provision in a number of Lloyd’s of London syndicates via the Securis Lloyd’s Corporate Member. In response and in order to satisfy investor appetite, the Fund gives investors access to the Lloyd’s Market and underlying syndicates via a Fund vehicle, allowing them to capitalise on both the Specialty Lines (re)insurance business portfolios as well as capital leverage through a diversified “spread” corporate member model. The Securis LCM Fund has invested, through capital provision, in a number of Lloyd's syndicates, for the 2015 Year of Account, in order to build a portfolio of diverse (re)insurance risks.
  
 ZB: What are the benefits of using the Corporate Member?
 LPB: One of the benefits of using the Corporate Member is to establish immediate access to an in-force portfolio of diversifying premiums and returns. They We believe that there is market appetite in some areas to identify long-term partners along with the possibility for single year or multi-year relationships and that the Corporate Member would benefit from these opportunities. The longer term relationships established with Lloyd's Managing Agents would also increase their our insight into Lloyd's market.
  
 Two established ILS Managers, namely Nephila Capital through Syndicate 2357, and Credit Suisse Asset Management (CSAM) through capital provision of Barbican SPS 6120, have “plays” within the Lloyd’s Market. Each enterprise will have their own strategy, dependent on their views of market & cycle opportunities.
  
 ZB: Where is the actuarial appeal in the Lloyds market?
 LPB: With the increasing regulatory burden through the implementation and continued requirements of Solvency II for Lloyd’s, as well as the Managing Agents, the role & responsibility of the Chief Risk Officer (CRO) or Group Actuary remains significant.
 Many CROs are qualified actuaries, with consulting or other broad based backgrounds being of great appeal to the Market. The responsibilities are onerous with capital, risk, pricing, and reserving generally falling into their arena - and generally with these positions comes a seat of the Managing Agency Board.
  
 Securis undertakes operational due diligence, on an on-going basis, as well as underwriting benchmarking and reviews to ensure ensure that the requisite areas are covered sufficiently in respect of technical knowledge and expertise. Ultimately, we feel that the position is of significance and form a part of Management Teams whom we review, and monitor, as they lead their respective enterprises in an effective, and profitable manner for capital providers.
  
 ZB: After all you have said, how easy is it to actually achieve entry into Lloyds?
 LPB: It is worthwhile emphasising that the process of actually achieving entry into establishing an underwriting or capital provision platform is not to be taken lightly. Lloyd’s has an excellent client management team who can advise on the new entrant’s process as well as support through the various stages of the application process.
  
 ZB: What are your key take-aways from working with Lloyds for so long?
 LPB: I have hugely enjoyed working as part of one of the most dynamic & interesting segments of the (re)insurance industry, with London being very much “the global heartbeat” and home of Lloyd’s and hope to remain fully immersed in its workings for years
 to come.
  
  You can read Zoe's second interview, with Stef Raftopoulos, Managing Director of Athito, in her second article entitled Lloyd's Turning the Key in the new edition of the magazine by clicking the link here
 
  

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