City giants and niche firms blur the borders

The distinction between City firms and the EC3 London insurance litigation specialists is dissolving as the groups vie for each other's work. Catrin Griffiths reports.

If the insurance industry is suffering from overcapacity and soft rates, then so is the legal market. At the volume end, firms are being squeezed; at the high end, where more complex reinsurance advice and corporate transactions are carried out, lawyers have to prove their creativity and commitment on a daily basis.

And with Lloyd's and the companies market locked in an ever-tighter embrace, the same has been happening to the traditional spheres of City law firms.

There has historically been a huge cultural divide between traditional London market (EC3) firms and corporate-driven City practices, but the old demarcations are starting to break down.

Traditional London market firms include Barlow Lyde & Gilbert, Clyde & Co, Ince & Co and Holman Fenwick & Willan, which have tended to dominate insurance and reinsurance litigation. All but Barlows built up their reinsurance work on the backs of marine clients.

On the other side of the fence, the big City firms tend to dominate the large corporate transactions.

On any large merger, especially with a demutualisation element, you will see a combination of any of the following firms: Ashurst Morris Crisp, Clifford Chance, Freshfields, Herbert Smith, Linklaters & Alliance, Lovell White Durrant, Norton Rose and Slaughter and May.

The City firms pose the greatest threat to the traditional EC3 firms, given their connections with international investors wanting a piece of the London action.

Most City firms possess an international capability which is beyond the means of the EC3 firms, although only one – Lovell White Durrant – has actually gone all out to develop a defined international insurance service line. Lovells' three US offices – in Chicago, New York and Washington DC – all have a strong insurance bias.

Ashursts, Clifford Chance, Linklaters and Lovells already have a track record, while Freshfields' and Norton Rose's progress over the past couple of years has also been noteworthy.

Freshfields was intimately involved in the Lloyd's Reconstruction & Renewal plans (R&R), so it is hardly surprising that its advance into EC3 is based upon heavyweight litigation capability. For example, it successfully advised Kwelm on Kingscroft v Nissan Fire & Marine.

However, Freshfields' progress in this market is likely to be limited unless it conquers the widespread assumption in the London market that it is the most expensive firm around.

Norton Rose, meanwhile, which has had a steady, if unspectacular, involvement in reinsurance litigation, has gone all out for corporate work – particularly in Lloyd's – with considerable success.

All of this poses an interesting challenge for the EC3 firms, and interesting choices for clients.

The larger listed Lloyd's vehicles already tend to use firms such as Ashursts, Clifford Chance, Linklaters, or Lovells. All of these have strong corporate connections with the investment trust fraternity.

At the same time, EC3 firms with corporate practices and a traditional base of managing agencies have seen a lot of their clients being swallowed up by outside investors.

But recent deals have shown that the traffic is not all one way.

Some EC3 firms have handled some meaty Lloyd's-related transactions in the past year, and are all gearing up for more.

Barlow Lyde & Gilbert advised Kiln on its merger with Kiln Capital, which required a capital reorganisation, a listing, a merger, a placing and open offer, and an offer for subscription.

Clyde & Co has advised Wren on a number of deals, including the £100m merger with Master Insurance Underwriting and, most recently, on the £220m merger with Brit, which created one of the biggest insurance groups at Lloyd's.

Brit was advised by Titmuss Sainer Dechert. Titmuss and Brit go back a long way; Titmuss advised on the flotation back in 1995-96 and has done most of Brits' major acquisitions and deals.