Keeping Lloyd’s Competitive l a i m s / L o s s e s 1) Corporation net assets: Corporation...
Transcript of Keeping Lloyd’s Competitive l a i m s / L o s s e s 1) Corporation net assets: Corporation...
Keeping Lloyd’s Competitive
© Lloyd’s
John Parry, Chief Financial Officer
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Disclaimer
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This information is not intended for distribution to, or use by, any person or entity in any jurisdiction orcountry where such distribution or use would be contrary to local law or regulation. It is the responsibility ofany person publishing, downloading or communicating the contents of this document or communication, orany part thereof, to ensure compliance with all applicable legal and regulatory requirements.
The content of this presentation does not represent a prospectus or invitation in connection with anysolicitation of capital. Nor does it constitute an offer to sell securities or insurance, a solicitation or an offerto buy securities or insurance, or a distribution of securities in the United States or to a U.S. person, or inany other jurisdiction where it is contrary to local law. Such persons should inform themselves about andobserve any applicable legal requirement.
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Strategy 5
Brexit 9
Capital 13
Oversight 23
Innovation 29
Agenda
Strategy & Planning
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The benefits of placing business and operating at Lloyd’s
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The advantages of operating at Lloyd’s remain strong
Customers & distribution Capital Operations & services
• Access to business brought to Lloyd’s
• A broad and expanding licence network in over 200 territories
• Delegated authority and subscription models
• All policies underpinned by the Central Fund
• Efficient and Flexible
• Single Financial Strength Rating
• Economies of scale from central services
Talent Brand Market oversight
• The Lloyd’s market is a recognised centre of specialist underwriting, claims and analytics expertise
• Lloyd’s has a globally recognisable brand
• Reputation for paying all valid claims in a timely and efficient manner
• Corporation oversees risks written at Lloyd’s
• Proportionate and robust market oversight regime consistent with an entrepreneurial and innovative culture
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Lloyd’s strategy
To be the market for specialist insurance and reinsurance, where the world takes its risk
Corporation purpose
Strategic priorities
Market Oversight
Operations & Services
Capital
Talent Brand
Customers & Distribution
Under our trusted name, the Corporation acts to create and maintain a competitive, innovative and secure market. Our dedicated people serve to protect and promote the interests of the market and its customers, provide valued services to market participants and advance the interests of the capital
providers over the long term.
Lloyd’s market purpose
Lloyd’s enables human progress
Lloyd’s market vision
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New entrants
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2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Approved Managing Agents
Approved SPA
Approved Syndicates
Interest in business joining the Lloyd’s
Market remains strong.
The SPA structure remains attractive for
the development of new businesses.
Groups are continuing to access the
market initially at member level,
supporting third party syndicates.
Brexit
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Why do we need the Lloyd’s Brussels subsidiary?GWP(1) (EUR MN)
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1,445
1,447
1,202
2,891
1,202
Note: (1) based on 2016 EEA GWP, excluding Life
Accessible
Reverse solicitation
Prohibited
Accessible via LIC
Do nothing – World Trade Organisation Rules Lloyd’s Insurance Company
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How the Lloyd’s Brussels Subsidiary will work
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Coverholder
Subsidiary
(Credit Rating to be maintained)
Managing Agent (UK)
+ Branches
+ UK Branch
Business flow
100% owned by the Corporation
Broker
Policyholders
SyndicateBusiness reinsured to syndicates
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• Lloyd’s Brexit lobbying position: continued trade with Single Market. No ‘hard Brexit’, transitional arrangements instead. Ongoing engagement with UK Government
• Brussels Subsidiary will be a fully fledged Insurance Company, fully regulatory and tax compliant
• Allows continued trading under the Lloyd’s brand and benefiting from Lloyd’s robust financial ratings
• Maximum Reinsurance back to syndicates (100%)
• Initial capital injection from Society of Lloyd’s
Timeline of the Lloyd’s Brussels subsidiary
Lloyd’s
October 2017Regulatory application submitted
July 2018Operationally ready
and regulatory authorisation
received
Q2 2018Market onboarding
Q4 2017Company set-up 1 Jan 2019
March 2019UK exits EU
Timeline:
Live Trading Q3 2018Business
processing
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Capital
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Lloyd’s capital base is diversifying in line with our strategy
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Capital
US Insurance Industry
2011 – 23.1%2017 – 18.8%
UK Insurance Industry 2011 – 22.6%2017 – 13.0%
Japan Insurance Industry
2011 – 5.5%2017 – 13.7%
Bermuda Insurance Industry
2011 – 18.2%2017 – 15.9%
European Insurance Industry 2011 – 4.7%
2017 – 11.5%
Middle/Far East Insurance Industry
2011– 0.4%2017 – 2.8%
Private Capital 2011 – 12%2017 – 10.2%
Worldwide Non-Insurance 2011 – 8.1%2017 – 4.2%
Rest of World Insurance Industry 2011 – 5.5%2017 – 9.8%
Other Capital Sources:
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Strong and Flexible Capital Structure:
All premiums received by a syndicate are held in its premium trust funds and are the first resource for paying policyholder claims from that syndicate.
Each member provides Capital to support its underwriting at Lloyd’s. Each managing agent produces its own capital assessment in respect of each managed syndicate stating how much capital it considers is needed to cover its underlying business risks with a 99.5% confidence level.
The central assets are available at the discretion of the Council of Lloyd’s to meet any valid claim that cannot be met by the resources of any member. It is funded by members’ annual contributions and subordinated debt issued by the Society in 2014 and 2017.
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1severalAssets
Syndicate level Assets£52,983m
Callable layer(≤ 3%) 2
£875m
Subordinated Debt/Securities £792m
Central Fund £2,030mCorporation Net assets1
Members Funds at Lloyd’s (FAL)£22,291m
SecondLink
Firstlink
ThirdLink
mutualAssets
Lloyd’s “Chain of Security”
Cla
ims/ L
osse
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1) Corporation net assets: Corporation Reserves, Associates Reserve, Revaluation Reserve, Translation Reserve; 2) Callable layer: Central Fund assets may be supplemented by a ‘callable layer’ of up to 3% of members’ overall premium limits in any one calendar year. These funds would be drawn from premium trust funds. Source: Lloyd’s pro forma financial statements, 30 June 2017
£83m
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Balance sheet
Balance sheet
£m December 2014 December 2015 December 2016 June 2017
Cash and investments 54,889 56,900 67,646 65,941
Reinsurers’ share of unearned premiums 1,976 2,368 3,110 4,422
Reinsurers’ share of claims outstanding 8,785 8,610 11,310 11,963
Other assets 14,063 15,751 19,536 23,122
Total assets 79,713 83,629 101,602 105,448
Gross unearned premiums (12,652) (13,723) (16,548) (19,212)
Gross claims outstanding (38,134) (38,833) (47,747) (47,373)
Other liabilities (5,514) (5,975) (8,710) (10,884)
Net resources 23,413 25,098 28,597 27,979
Member assets 20,835 22,453 25,718 25,074
Central assets1 2,578 2,645 2,879 2,905
Source: Lloyd’s pro forma financial statements, 30 June 2017. 1Central assets are the net assets of the Society including the Central Fund, excluding subordinated debt liabilities and the callable layer.
December 2014 – HY 2017
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Lloyd’s financial strength ratings are strong
© Lloyd’s
Source: S&P Research update October 2017, S&P Full Rating Report September 2017, Fitch Ratings Press Release October 2017, Fitch Ratings Full Rating Report July 2017, A.M. Best press release July 2017, Best’s Rating of Lloyd’s 2017, September 2017
Ratings Standard & Poor’s Fitch Ratings A.M. Best
Insurer financial strength (IFS)
Affirmed October 2017Negative outlook
Affirmed October 2017Negative outlook
Affirmed July 2017Stable outlook
Subordinated debt rating
A- A- a-
Key strengthsquoted by the rating agency
• Very strong competitive position with wide geographic and product coverage
• Very strong capital and earnings and strong financial flexibility
• Strong risk controls, risk culture and risk management
• Very strong business profile and strong market performance
• Strong and well structured risk management framework
• Strong member and central capital
• Strong and stable risk-adjusted capitalisation
• Good financial flexibility
• Strong underwriting performance
• Excellent business profile
IFS Ratings
AA-
A+
A
A-
BBB+
S&P
2011 2012 2013 2014 2015 2016 2017
Fitch
AM Best
A+(Strong)
AA-(Very strong)
A(Excellent)
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500300
0
100
200
300
400
500
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
Nominal value (£m) Lloyd’s Tier 2 subordinated debt outstanding
Debt Profile
Issue Date Issuer StatusBond Rating (S&P/Fitch)
CurrencyAmount Issued (£m)
Amount Outstanding
(£m)
Coupon (%)
First Call Date
Maturity Date
07 Feb ‘17Society of
Lloyd’sTier 2 A-/A- GBP 300 300 4.875 07 Feb ‘27 07 Feb ‘47
30 Oct ‘14Society of
Lloyd’sTier 2 A-/A- GBP 500 500 4.750 N/A 30 Oct ‘24
N.B.: Chart shows bonds at the earlier of maturity and first call date
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Lloyd’s solvency position stable during 2016-17
Source: Lloyd’s Internal Model. Data represents the position from the unaudited solvency returns, which may differ from the final audited submissions. 1MWSCR: Market Wide SCR, calculated to cover all of the risks of ‘the association of underwriters known as Lloyd’s; 2CSCR: Central SCR, calculated in respect only of the risks facing the Society and the Central Fund. After allowing for ring fenced funds and distributable profits.
0% 20% 40% 60% 80% 100% 120% 140% 160% 180%
30 June 2017
31 December 2016
1 January 2016SCR
Eligible assets in excess of the SCR
Ineligible assets
Lloyd’s MWSCR1 (£m)
147%
144%
0% 50% 100% 150% 200% 250%
30 June 2017
31 December 2016
1 January 2016
SCR
Eligible assets in excess of the SCR
Ineligible assets
Lloyd’s CSCR2 (£m)218%
211%
26,510
1,932
7,800
7,564
1,558 3,430
1,600
1,960
3,4331,833
1,728
17,200
16,750
26,696
Solvency cover ratio % (risk appetite: 125%)
Solvency cover ratio % (risk appetite: 200%)
144
146%
14,150 6,512 2,878 23,540
1,450 1,712 3,162
215%
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Impact of natural catastrophes in H2
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Industry estimates still vary widely
Significant industry losses
Market-turning event?
Earnings event?
Capital event?
It’s not only Harvey, Irma and Maria
USD Billions Industry loss estimates
EventLloyd’s net
claims estimatesLow range estimate
High range estimate
Harvey 1.8 7.5 35
Irma 2.1 32 55
Maria 0.9 15 40
Total 4.8 54.5 130
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2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
All othersyndicates
The impact from the Q3 hurricanes is spread across multiple syndicates and absorbed within capital held above the SCR
Make-up of ECA for the market (including the 10 largest syndicates), showing the impact of HIM losses (£m)
Source: SCR/ECA analysis and large loss QMA return submissions, 30 September 2017. ECA: Economic capital assessment. SCR: Solvency capital requirement. HIM: Harvey, Irma and Maria
SCR
SCR
Original ECA
35% uplift to calculate ECA
Amount of ECA impacted by HIM losses
HIM impact
-
200
400
600
800
1,000
1,200
1,400
Synd A Synd B Synd C Synd D Synd E Synd F Synd G Synd H Synd I Synd J
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Return on capital
Return on capital
2012 2013 2014 2015 2016 HY 2017
Pre-tax result (£bn) 2.8 3.2 3.0 2.1 2.1 1.2
Combined ratio 91.1% 86.8% 88.4% 90.0% 97.9% 96.9%
Investment return 2.6% 1.6% 2.0% 0.7% 2.2% 1.5%
Gross written premiums (£bn)
25.2 25.6 25.3 26.7 29.9 18.9
Net resources1 (£bn) 20.2 21.1 23.4 25.1 28.6 28.0
Pre-tax ROC 14.8% 16.2% 14.1% 9.1% 8.1% 8.9%
Source: Lloyd’s pro forma financial statements, 30 June 2017. ¹Net resources: capital, reserves & subordinated loan notes and securities.
2012 – HY 2017
Oversight
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Risk Appetite Framework
Key Corporation risk Market oversight risk
Corporation purpose:
Board level Tier 1 metrics
Pillar: Sustainability
Strategic, Group, Insurance, Credit
Pillar: Solvency
Market, Liquidity
Pillar: Operational
Reputation, Legal & Reg, Conduct
Under our trusted name, the Corporation acts to create and maintain a competitive, innovative and secure market. Our dedicated people serve to protect and promote the interests of the market and its policyholders, provide valued services to market participants and advance the interests of
capital providers over the long term
Delivery metrics
Monitoring metrics
Attractiveness of Lloyd’s Market
Underwritingprofitability
Syndicate capability Liquidity
Reinsurance failure
Catastrophe exposure
Reserve deterioration
Central Fund investment
Operational effectiveness
Financial crime and sanctions
Regulatory, legal & tax compliance
Conduct
Cyber (data protection and
theft)
Risk objective: Management of financial risks ensures that Lloyd’s is not exposed to undue
concentration and is able to withstand an extreme event & trade forward
Risk objective: Risk of operational and other events is managed to ensure Lloyd’s
maintains its strong reputation
Risk objective: Lloyd’s strategy must deliver a sustainable business model over the
medium term
Board reporting dashboard = 13 key metricsLloyd’s has redeveloped the risk appetite framework
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Four priorities
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Operating expenses
Market facilities
Acquisition costs
Catastrophe cover
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Approach to business planning
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Focus on combined ratio
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Entry = closing a performance gap
High-level plan
New timetable: staggered deadlines
Direct presentations to CPG
Pre HIM
Post HIM
Rate vs exposure changes
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2018 focus – Improving our risk-based approach to continue addressing the performance gapPortfolio review
Continue prudential focus on underperforming business
Enhanced rate monitoring
All year, not just on 1 January
Class of business reviews
Underwriting review
– Learning lessons from Harvey, Irma, Maria
Thematic reviews
Follow-up reviews
– Non US Professional Indemnity
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Thematic Reviews
Property
Marine Hull
Overseas Motor
Cyber underwriting cross class
Innovation
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Innovation @ Lloyd’s
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Horizon-scanning
What risks are out there?
Raising awareness
Thought leadership
Understanding the implications Decision-making resources (scenarios)
Quantification
For product innovation & exposure management
Evaluation
How significant are the risks?
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Innovation @ Lloyd’s
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Horizon scanning Regular email update
Evaluation Marine risks: testing Lloyd’s RDS
Thought leadership City Risk Index 2018
Understanding the implications Cloud failure scenarios
Quantification Marine tracking tool
Distribution Disaster Risk Facility
Process Artificial intelligence
Q&A
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