A great deal has been written of late about the difficulties that Lloyd's of London is experiencing vis a vis some U.S. investors who are suing the marketplace. Because of all the negative publicity Lloyd's has received in the United States, one might assume that Lloyd's underwriters are fed up with the American market. Not so.
"Our commitment to the United States is without question," says Julian James, managing director of Lloyd's North America. "We expect U.S. income to continue to increase as we work in partnership with brokers and clients to deliver customized and effective risk solutions."
As proof of that, Lloyd's recently released its U.S. premium income results for 1999, showing significant growth across virtually all categories of business. Lloyd's premiums in 1999 totaled $4.8 billion, which was a 17% increase from $4.1 billion in 1998. In 1999, property business accounted for 38% of Lloyd's total U.S. income; general liability for 25%; accident and health business for 11%; aviation for 10% and marine for 7%.
In addition, Lloyd's has long been a key player in the U.S. reinsurance market, providing coverage for everything from medical malpractice mutuals to property catastrophe risks. Reinsurance accounts for more than $2 billion of total U.S. premiums.
"Lloyd's premium growth is a result of our ability to respond quickly to changing client needs and to develop strong meaningful relationships," says Anthony Taylor, a senior Lloyd's reinsurance underwriter at Wellington Underwriting Agencies, Ltd.
Lloyd's direct business also showed signs of significant growth in 1999. Surplus lines premiums increased the most, jumping 21% to over $1.9 billion from $1.6 billion in 1998. In fact, Lloyd's is the market leader for the U.S. surplus lines business, with a market share significantly larger than any other single U.S. domestic carrier. Risks underwritten range from construction projects to new cyberliabilities created by the growth of e-commerce and use of the Internet.
"It's not just the big or unusual risks that are insured at Lloyd's of London," says James. "Lloyd's unique structure, with some 1,300 underwriters operating within one single marketplace, generates flexibility and expertise to respond to just about every type and size of risk."
One Lloyd's syndicate, which is particularly gung ho on the U.S. market, is the Hiscox Syndicate. Hiscox writes inside the Lloyd's market but also outside the market as Hiscox Insurance Co.
"We focus on areas we know well where we can take a leading role," says Ed Cruttenden, an underwriter at Lloyd's. In interviews at Hiscox headquarters in London, Cruttenden and Nicholas Ward, also an underwriter, discussed their enthusiasm about the U.S. market. They said that Hiscox writes about $50 million in premium dollars worldwide, and about $20 billion of that is U.S. business.
Cruttenden's and Ward's specialty is professional liability insurance, especially employment practices liability insurance (EPLI). It's interesting that these two underwriters see the U.S. market as ripe for growth, especially in light of the fact that the legal environment in the United States is unpredictable. But Cruttenden and Ward say that the secret is to choose clients carefully and to concentrate on controlling losses--risk management.
"Corporate clients in the United States are more sophisticated than clients in other parts of the world," say Cruttenden and Ward. "And sound risk management is the best way to control losses. Also, we stay abreast of insurance-related developments in the United States on a state-by-state basis. We don't write occurrence policies as Lloyd's did in the 1960s and 1970s, which is what got the marketplace into trouble. We write small, medium and large accounts, but we tend to focus on the better managed firms."
Cruttenden and Ward maintain that, especially in the area of professional liability, it is essential to keep in close contact with their clients' lawyers. "We want to know a potential client's loss history, sometimes as far back as ten years," they say. "We won't chase after business just to get it. Our philosophy is to be profitable, not growth just for growth's sake."
In addition, Cruttenden and Ward point out that the professional liability market is hardening somewhat in the United States, which makes for a better scenario. "A good part of the business we write is in the legal profession," they say. "Many of these legal firms are going global through mergers and acquisitions. There are a great many international issues of which they must be aware. Because of our international experience, we can offer particular insurance products they need."
The Hiscox executives say that two growing markets in the United States are EPLI and intellectual property. "There is an increased awareness as to how to protect an individual's 'intellectual property', especially in the area of software design. There is a great deal of growth opportunity in the high-tech fields."
But Cruttenden and Ward emphasize that, while they believe there are a great many areas for growth in the United States, they choose their clients carefully. "The United States is a volatile market in terms of the court system and high jury awards. But we believe that by exercising sound risk management techniques, it can be a profitable market. Again, the U.S. market is more amenable to sound risk management techniques than the U.K. market, where only the really large firms employ risk managers. By carefully choosing the clients we write, we believe that the potential in the United States is significant." *
The author
Phil Zinkewicz is an insurance journalist with some 25 years' experience covering the international insurance and reinsurance arenas. He was the insurance editor of the Journal of Commerce for a number of years, handling all their domestic and international supplements. In addition, he writes for a number of London publications on a regular basis.
©COPYRIGHT: The Rough Notes Magazine, 2000