The London insurance market is unique. However, due to centuries of deals, the culture of Lloyd’s and the influences from international and new markets, London is now facing some of the toughest challenges of its 300-year insurance history. Notably, the events of 11 September have had a major impact on the sector.
Barlow Lyde & Gilbert insurance partner Yvonne Jefferies notes, though, that while 11 September “decimated” the market, it had already been struggling. Other large claims and a poor investment environment resulted in a huge loss of capital from the sector and a consequent reduction in capacity. The losses after 11 September just got bigger.
William Bloomer, head of legal at insurance and reinsurance broker Heath Lambert, says that since the attacks it has become more difficult to place insurance – premiums are now higher and claims are less likely to be paid.
Mark Turvey, head of legal at insurance company SVB Holdings, agrees that costs have risen. “Rates have climbed generally since then, although the rate of increase is tailing off,” he says. “Premiums are now substantially above where they were.”
Aside from 11 September, the US is generally becoming increasingly influential. While the London market is a world leader for industrial, aviation, energy and marine insurance and reinsurance, much of the sector is now controlled by the US. As Jefferies notes: “Many companies report [in the US] and as such it has an influence [on the UK] and on the Continent. London is not necessarily where it all happens.”
The industry has also looked to the US in light of Lloyd’s chairman Lord Peter Levene’s recent tort reform comments. James Healy-Pratt, head of legal at listed insurer Amlin, says: “The US judicial system is the biggest global casino owing to hefty damage awards and the nature of juries. This has a follow-on cost to different sectors, including insurance. Lord Levene has spoken about curbing excesses, but there’s doubt that anything will actually happen. The US is a very generous place and very pro-plaintiff.” The tort reform debate will be watched closely by the London market, especially in regards to claims work.
The self-contained market of Lloyd’s has been susceptible to trends such as corporatisation and the changing face of capital. At Lloyd’s peak in 1988, there were 32,433 natural names [those who used to provide capital] underwriting risks; in 2002, the number had fallen to less than 2,500. Corporate names have had to plug the capital gaps. “This business depends on other people’s capital as well as our own,” says Turvey. “Old Lloyd’s names were accepting of the volatile nature of financial results. Now corporate capital providers demand less volatility. So we now face a balance to keep the best of Lloyd’s entrepreneurial spirit and to smooth out peaks and troughs, finding new ways to distribute the capacity.” SVB has accordingly opened up a distribution scheme, catering to the small-to-medium enterprise market with the aim of easing capital volatility.
This creeping corporatisation is indicative of the altered culture of the whole of the London market. Richard Barnett, claims and litigation director at investment agency RiverStone Management, says: “The feeling that we’re all part of one large club has been replaced by a more professional attitude within the sector. Now we take technical points against each other – we don’t let things slip. The introduction of corporate capital has meant a stricter discipline and more objectivity.” The lawyers agree that the checks and balances now imposed are a positive change, even at the expense of collegiate relationships.
One aspect of the industry the lawyers are still collectively preoccupied by is corporate governance, especially as the sector prepares to absorb looming Financial Services Authority (FSA) regulations and EU changes.
Jefferies summarises the in-house position simply. “Insurance counsel need to get on top of these various tensions,” she says. “Compliance issues are traditionally seen with dread, which is a counter-productive response. In-house counsel now must make the company aware of the new regimes and how roles will have to be changed.”
Lloyd’s vehicles have an even tougher time of it. As Turvey says: “As a Lloyd’s managing agent, we were regulated by Lloyd’s then passed to the FSA, but Lloyd’s maintained the supervisory role
in order to protect the Lloyd’s franchise.
“There have been overlaps in the two regimes, with Lloyd’s duplicating the FSA’s efforts. Our most alarming moments have been when our regulatory obligations as a quoted company have directly conflicted with those we owed to Lloyd’s, but increased understanding of these issues on the part of Lloyd’s makes this unlikely now.”
The Lloyd’s franchise has been developed to police and preserve the quality of the Lloyd’s concept, while the FSA regulations stem from a broader interest in the structure of business. “In effect, we’ve been regulated by the FSA from the top down and Lloyd’s from the bottom up, with overlaps – and sometimes it’s been difficult to tell the difference,” adds Turvey.
Randi Cigelnik, head of legal at Ace European Group, believes that whatever the recent changes, the insurance market is in good shape. “We’re in a good business cycle now – and I think underwriters are happy. Because of a low frequency of catastrophes and disciplined underwriting, we’ve had a good year last year and have been able to charge fair rates for the business. In most lines of business, terms, conditions, pricing and client relationships are looking good, and there’s lots of opportunity in property and casualty and accident and health for a company with a strong capital base.”
The good times are rolling for other players in the market too, including private practice lawyers, according to Jane Owen, head of legal at insurance/reinsurance brokers Aon. “The market went from soft to hard,” she says. “There was a retreat of capital and lots of companies went into runoff, and it’s become a beanfeast for private practice solicitors. Insurers and reinsurers are afraid not to take legal advice in today’s legal corporate governance environment. Solicitors are giving legal advice and their clients are paying lots in legal fees, but claims aren’t always getting paid. This explosion of claims has also meant much more work for brokers.”
| Organisation: Ace European Group
Revenue: $4bn (£2.2bn)-plus
Head of legal: Randi Cigelnik
Legal capability: 15
Main law firms: Clyde & Co and Lovells
Ace has three major operations: a Lloyd’s arm, a Belgian arm and a Financial Services Authority (FSA) arm.
An insurance litigation lawyer originally hailing from Chicago, Randi Cigelnik came to the UK from the warmer climes of Bermuda (one of the new markets emerging onto the world insurance scene) as general counsel of Ace Bermuda Insurance. Cigelnik joined Ace in 1995 as vice-president in the financial lines division. She rose through the ranks to the newly-created position of general counsel.
Ace has recently established an FSA company infrastructure that will support the business’s licensing, excess and surplus lines. “This is a major asset for Ace and is something we’re very proud of being involved in,” says Cigelnik.
| Organisation: Amlin
Employees: 600 (UK)
Head of legal: James Healy-Pratt
Legal capability: Barlow Lyde & Gilbert, Beaumont & Son, Hill Dickinson, Ince & Co and Watson Farley & Williams
Main law firms: Clyde & Co and Lovells
Amlin, which is listed on the London Stock Exchange, operates in the Lloyd’s market with a managed capacity for 2004 of £1bn.
An early interest in aviation led James Healy-Pratt to the world of insurance. He trained as a barrister with 169 Temple Chambers and in 1992 made the move in-house to British Aviation Insurance Group (now Global Aerospace). Since 2000 Healy-Pratt has been group general counsel at Amlin, heading a group of insurance and reinsurance professionals dealing with aviation, direct marine, property, casualty and commercial motor insurances.
Healy-Pratt highlights the introduction of Kinnect, an international venture sponsored by Lloyd’s that aims to enable brokers and underwriters to send risk data electronically, as a significant trend. He says the London insurance market is on the cusp of an electronic big bang and the sector is only gradually getting to grips with it.
“It’s a real cultural change,” says Healy-Pratt. “Three months ago you went to Lloyd’s as you would to the fruit-and-veg market, ie brokers physically had to walk to individual underwriting boxes to place risks and service claims. Now we’re dealing with successful live placings of a risk from terminal to terminal. This is the future.”
| Organisation: Aon
Revenue: $1.1bn (£600m)
Employees: 9,500 (UK)
Head of legal: Jane Owen
Legal capability: 11
Main law firms: CMS Cameron McKenna and Simmons & Simmons
Jane Owen practised as a barrister at what is now 3 Verulam Buildings for 11 years before joining Alexander & Alexander, the global broker acquired by Aon in 1997. As legal and regulatory director and member of the main board, Owen is responsible for overseeing the law division in the UK and internationally for all compliance issues, and for any professional negligence claims, risk management advice and all compliance issues.
In addition to an in-house corporate/commercial team, a recent increase in HR issues has seen the need for a second full-time employment lawyer. Owen says Aon clients are increasingly sophisticated and are seeing the benefit in getting legal advice. “We try to do all the work in-house,” she says. “More and more of the business requires written agreement, and it’s no longer good enough to do business on a nod and a handshake.”
Not surprisingly, Owen cites corporate governance as being a major preoccupation for her team. “We’ve been very busy with forthcoming Financial Services Authority regulations and we’re happy with where we have got to on that,” she says. “In the summer of 2002 we began a programme to get the company ready. We’re still on target [which is no mean feat] and we feel we’ll be ready for the regulations in January 2005. This has been a real challenge and has taken up a lot of the law division’s time.”
| Organisation: SVB Holdings
Head of legal: Mark Turvey
Legal capability: One
Main law firms: Ashurst, Barlow Lyde & Gilbert, Clyde & Co and Norton Rose
Mark Turvey began his career as an insurance broker at Hogg Robinson before switching back to the law 13 years later. He found himself doing time as a self-confessed “elderly” article clerk at Barlow Lyde & Gilbert.
“I began to sense I wanted to go back into the industry,” he says. “In fact, I’d never really left it, because Barlow Lyde & Gilbert is such a heavyweight insurance firm. It made sense to go back to the business as that was what my background was all about.”
In 1999, Turvey joined SVB Holdings, a listed integrated Lloyd’s vehicle (ILV). The company took a knock in 2001 due to one syndicate being
Recently, SVB faced some difficult negotiations with reinsurers and capital providers. “We were David to their Goliath,” says Turvey. “They wanted to drive a harder bargain than we could live with, and we found a way through which worked for us both despite SVB not having huge financial muscle. Those moments are most satisfying.”
Turvey has also been working with a team consisting of SVB’s finance director and supported by ABN Amro Hoare Govett and Norton Rose on the first convertible euro bond ever issued by an ILV – a feat as yet unmatched.
| Organisation: Heath Lambert
Employees: Approximately 3,000
Head of legal: William Bloomer
Legal capability: Four
Main law firms: CMS Cameron McKenna and Reynolds Porter Chamberlain
Fresh from the insurance department at CMS Cameron McKenna in Hong Kong, Bloomer was offered a job as number two at Heath Lambert. “I was looking to come back to England, so I took the job late in 1999,” he remembers. “Then, in 2000, the boss left and I became head of legal at Heath Lambert.”
Recently, his team has been involved in preparations to float the company (later cancelled), Financial Services Authority (FSA) regulations and claims against the company.
Bloomer says the insurance sector is currently a good one to be working in. “A number of issues seem to have impacted at the same time,” he says. “11 September, higher premiums, impending FSA regulation and a greater willingness for clients and insurers to look for legal redress has made the broker’s role more relevant than ever.”
| Organisation: RiverStone Management
Head of legal: Catherine Regan
Legal capability: Four
Main law firms: Clyde & Co, Holman Fenwick & Willan, Mayer Brown Rowe & Maw and Reynolds Porter Chamberlain
Claims and litigation director Richard Barnett cut his teeth at Middleton Potts and then Clyde & Co, making partner after seven years. In 2001 he joined RiverStone Management, a run-off investment agent for insurance companies owned by Canadian parent Fairfax.
RiverStone is running off Sphere Drake Insurance, which is the subject of one of the biggest reinsurance litigation cases in recent years, also known as the Workmen’s Compensation case. A segment of the market had reinsured workmen’s compensation and various reinsurers passed large liabilities between them. Sphere Drake unwittingly became involved in this market through underwriting agents. RiverStone managed to prove that the brokers and underwriting agents had acted dishonestly in placing and accepting business that was obviously unprofitable on a gross basis. Barnett says: “We received judgment last July after a year’s trial in the Commercial Court. The implications of the case, while favourable for Sphere Drake, are potentially serious for other players in the market, and are still being fully worked out.”