Amlin, as the largest independent business in
Lloyd’s, enjoys a profile and level of influence
in setting the terms for risks which, for the
most part, it may not have as a stand alone
company outside Lloyd’s.
We perceive that Lloyd’s has the following
qualities that make it an attractive market in
which to be a leading participant.
Brand name:
The Lloyd’s brand name in
insurance is world renowned. This provides
recognition of our product on a greater scale
than Amlin can achieve on its own at this point
in its development.
Global administration:
Lloyd’s provides Amlin
with licenses to write insurance and reinsurance
in 72 countries and manages, on behalf of all
firms in the Lloyd’s market, relations with, and
the provision of information to, the various
licensing authorities. Similarly, Lloyd’s
administers the complex international
insurance tax issues for the market.
Capital efficiency:
Lloyd’s unique capital
structure affords companies such as Amlin
more flexibility in providing solvency capital
than normal insurance companies, for example
through the use of letters of credit.
Further, Lloyd’s is taking steps to permit the
earlier distribution of profits, thereby removing
a major cash and capital inefficiency.
Financial strength:
Lloyd’s security rating has
remained very robust relative to the industry
generally. This has helped to raise the profile of
Lloyd’s in important areas for Amlin, such as
reinsurance, where ‘A’ rated security is of
critical importance.
Growth potential:
Amlin perceives that Lloyd’s,
as a market, is strengthening and has the
potential to grow over the long term, especially
if efforts to reform market practices and to
materially improve client service standards
are delivered.
Barriers to entry:
The number of businesses
operating in Lloyd’s has been falling as barriers
to entry have risen and the need for market
stature and economies of scale has been
increasingly recognised. Amlin has been
a beneficiary of this trend which we expect
to continue.
However these benefits come with a cost.
Following the terrorist attacks on 11 September
2001, Lloyd’s took steps to increase the Central
Fund, the mutual fund underpinning all Lloyd’s
businesses’ financial security, and Amlin’s
contribution amounted to £13.9 million and
£22.3 million in 2002 and 2003 respectively.
In 2004 these contributions were reduced by
44% to £12.5 million as the special 2% levy
introduced by Lloyd’s for 2002 and 2003
lapsed. During 2004 Lloyd’s issued £500
million of 20 year subordinated debt to further
boost the Central Fund and from 2005 has
substituted a syndicate loan for part of the
annual contribution. In 2005 our non-loan
contributions will fall to around £4.3 million.
Lloyd’s has also been taking steps, with its
Franchise regime, to improve underwriting
practices and standards where necessary,
thereby reducing risk to the Central Fund.
Initiatives in these areas should provide
additional resilience to Lloyd’s rating in the
medium and longer term as well as reducing the
cost of Lloyd’s mutuality to market participants.
The provision of the Lloyd’s umbrella has
historically been sought by small businesses
who would find it difficult to trade on a stand
alone basis. Since the advent of corporate
capital in 1994, it has also attracted
international insurance groups which have
sought access to the business transacted
at Lloyd’s and to its network of international
licenses. The emergence of larger and
stronger businesses is likely to place
increasing pressure on Lloyd’s to adapt its
practices to cater for the greater demands
imposed by more professional management
teams so that it continues to remain attractive
to businesses which, as they grow, will have
more options open to them. Lloyd’s has made
excellent progress and appears to be making
the right moves.
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