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THE FUTURE OF PRIVATE CAPITAL AT LLOYD’S:A REVIEWJuly 2016

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THE FUTURE OF PRIVATE CAPITAL AT LLOYD’S: A REVIEW

CONTENTSFOREWORD ........................................................................................................... i

EXECUTIVE SUMMARY .......................................................................................... ii

1 INTRODUCTION .............................................................................................01 Introduction to the 2016 Private Capital Report Previous Reports on Lloyd’s Definition of Private Capital Voting Structure

2 PRIVATE CAPITAL AT LLOYD’S - STATISTICS ..............................................03 Participation of Private Capital at Lloyd’s Private Capital “New Money” Capacity Investment Returns to Private Capital

3 THE ANNUAL VENTURE ................................................................................07 Unaligned Capital / Private Capital Other Aspects of Unaligned Capital / Private Capital

4 CURRENT MARKET CONDITIONS .................................................................09 The Lloyd’s Market in the World of Insurance Over-Supply of Capital Reliance on Reserve Releases Flight to Scale – Haves and Have-Nots Broker Facilities

5 VIEWS ON PRIVATE CAPITAL ....................................................................... 11 External Views on Private Capital Managing Agents’ Views on Private Capital Managing Agents’ Relationships with Members’ Agents Lloyd’s Standard Agency Agreement and Tenancy Freehold Tenancy in Perpetuity Longer Time Horizons for Private Capital Participation Delivery of Larger Blocks of Capital to a Managing Agent

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6 COSTS OF PRIVATE CAPITAL ...................................................................... 15 Costs of Raising Capital Lloyd’s Costs of Administration Capacity Transfer Panel

7 MARKET GROWTH AND REGENERATION .................................................. 17 The Corporation of Lloyd’s – Market Regeneration Perception of Bias against Lloyd’s-Centric Start-Ups Start-up Structures

8 POTENTIAL NEW STRUCTURES FOR PRIVATE CAPITAL ........................... 19 New Structures Delivery of Private Capital – General Pooled Participations Discretionary Fund Special Purpose Syndicate (“SPS”) Quota Share Syndicate (“QSS”) Broker Facility Syndicate Contingent Capital Structure

9 RECOMMENDATIONS ................................................................................. 25 Recommendations Lloyd’s Recommendations Managing Agency Recommendations Members’ Agents Recommendations ALM Recommendations

GLOSSARY AND REFERENCES .................................................................. 29

APPENDICES ............................................................................................... 33 1. Previous Reports on the Lloyd’s Marketplace 2. Strength of Managing Agents’ Views on Specific Subjects 3. Interview Participants 4. Curriculum Vitae of Ian Clark and Chris Harman


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FOREWORD

FOREWORD 1This 2016 Private Capital Report was commissioned by the Association of Lloyd’s Members and the three Lloyd’s Members’ Agents. Its aim was to survey the attitudes of the Managing Agency community and other interested parties on the future of Private Capital within the Lloyd’s Market. The outcome has been to reveal an overwhelming level of support for Private Capital both among those Managing Agents who currently have Private Capital participation on their syndicates and those who do not.

There is, however, also a clear message from the Managing Agents that Private Capital needs to present itself differently if it is to grow as a proportion of the syndicates concerned. The lack of flexibility driven by the Standard Lloyd’s Agency Agreement, in particular the right of a Member to Freehold Tenancy, needs to be replaced with a more commercially balanced relationship. It is accepted that for practical, financial, and legal reasons there is nothing that can be done to change the status quo of existing Freehold Tenancy; any changes would need to apply to the future. New opportunities, and the growing of existing support, will require Private Capital to demonstrate a willingness to embrace change and to participate in the Lloyd’s Market in different yet complementary structures to those traditionally deployed.

This Report addresses a number of structures that would encourage the expansion of Private Capital on both new and existing syndicates. Such structures will also open up opportunities to participate on syndicates that are currently closed to Private Capital. It has the support of the overwhelming majority of Managing Agent participants and of the ALM and Members’ Agents.

Embracing and adopting several of the possible new structures will require positive action and support from the Corporation of Lloyd’s but the proposals are believed to be achievable under current market rules. The ALM and Members’ Agents look forward to delivering these new initiatives and working with Lloyd’s and the Managing Agents to deliver fresh ideas to the benefit of both their current Members and new sources of Private Capital.

Alan Lovell Chairman, Association of Lloyd’s Members

James Sparrow Alpha Insurance Analysts Ltd

David Monksfield Argenta Private Capital Ltd

Neil Smith Hampden Agencies Ltd

FOREWORD 2The Lloyd’s Market Association welcomes this Report as an affirmation of the role that Private Capital plays within the Lloyd’s Market. The LMA and its members look forward to working with the representatives of Private Capital in the development of these ideas that will enable Private Capital to advance in importance as a supporter of new and existing syndicates.

David Gittings Chief Executive, Lloyd’s Market Association


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BACKGROUND AND INTRODUCTIONThis Report (the “2016 Private Capital Report”) was commissioned to ascertain the views of the Lloyd’s Managing Agency community and other market participants on the provision of Private Capital in the Lloyd’s Market and how it might best be deployed in the future.

It draws on certain previous reports, most notably the 2006 report “The Annual Venture:– A Review” (the “2006 Annual Venture Report”).

Private Capital is broadly defined as “capital provided by private individuals trading as an Unlimited Name, a Limited Liability Company (“Nameco”), a Limited Liability Partnership (“LLP”) or a Scottish Limited Partnership (“SLP”)”. Participations in Lloyd’s by private wealth funds and specialist funds backed by Private Capital should be also considered as part of the Private Capital constituency.

PRIVATE CAPITAL CAPACITYSince 2007 the amount of Private Capital capacity within Lloyd’s has shown an increase from £2.5 billion to £2.7 billion (8% increase), but it has been diluted by other forms of Corporate Capital, which have increased more rapidly (overall 68% increase). The Members’ Agents have recorded that almost £600 million of new Private Capital capacity has entered the Lloyd’s Market since 2002.

Within Private Capital there has also been a change of mix as the number of unlimited liability Names has continued to fall, whilst the number of Private Capital limited liability vehicles has continued to rise. What is not apparent from these numbers is that behind many limited liability vehicles there are multiple shareholders or partners. It is usual to find family members as directors, shareholders or partners, with the expected outcome that ownership has been or will be handed down to future generations.

CURRENT MARKET CONDITIONSLloyd’s has transformed itself from its troubled status some years ago into a strong, well-capitalised brand attracting participation from a range of companies and investors from all over the world.

As with all insurance businesses at present, there is an over-supply of capital and the consequent pressure on insurance and reinsurance rates. Recent excellent results have in part depended on reserve releases from prior years, which become more challenging as the margins on more recent years become thinner.

The consolidations within the industry that have been the consequence of a flight to scale have impacted the Lloyd’s Market, as most Lloyd’s syndicates are small businesses in global terms. This has been exacerbated by the growth of broker facilities, whereby a broker’s business is bundled and directed to a smaller number of usually larger insurers.

EXTERNAL VIEWS OF PRIVATE CAPITALThe 2006 Annual Venture Report underlined the fact that Unaligned Capital (mostly meaning Private Capital) is seen as a significant positive to Lloyd’s.

The rating agencies view Unaligned / Private Capital as a significant source of advantage to Lloyd’s. Not only does it provide an alternative source of capital unavailable to other insurance entities, but its existence underpins the mutual structure, the core concept behind the Lloyd’s Market. The Lloyd’s mutual structure, with each syndicate trading independently, but with all ultimately supported by the Central Guarantee Fund, is a highly efficient capital structure that would probably be impossible to replicate today.

These views have stood the test of time and are as relevant today as they were a decade ago.

EXECUTIVE SUMMARY


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MANAGING AGENTS’ VIEWS OF PRIVATE CAPITALWith few exceptions, there is a consistent and positive view towards Private Capital among the Managing Agent community. It is seen as being stable, knowledgeable and a long term business partner. It is recognised as having many attractions by virtually all of the Managing Agents interviewed.

Many Managing Agents consider themselves as managers of third party capital. Even if they do not currently have any Private Capital participation on their managed syndicates, they remain welcoming to the principle of Private Capital. Their only issue is an unwillingness to accept new, or grow existing, Private Capital participation in its traditional form.

By far the commonest barrier mentioned by Managing Agents to growing the proportion of Private Capital concerns the subject of Freehold Tenancy in Perpetuity. This subject is governed by the Lloyd’s Standard Agency Agreement (“LSAA”) as between the Private Capital Member and the Managing Agent. Looking to the future, both those Managing Agents who currently have Private Capital and those who do not, wish any new Private Capital on their syndicates to be based on the tenancy rights being a commercial negotiation rather than being dictated by the LSAA. By insisting on Freehold Tenancy, it is apparent that Private Capital cannot grow as a share; at best it can stand still; in reality it is likely to shrink year-on-year.

There was a regularly expressed desire among Managing Agents to access Private Capital in larger blocks as this would assist in their own capital building process. A number of structures were suggested that might achieve this. These are identified in this Report.

There was a division of opinion amongst Managing Agents on the perceived difficulty of dealing with Private Capital. Nevertheless the majority view was that Private Capital may be different, but is no more onerous to deal with than any other form of capital.

MANAGING AGENTS’ RELATIONSHIPS WITH MEMBERS’ AGENTSWhilst there was a wide range of views expressed, the majority of Managing Agents believe that the Members’ Agents are both knowledgeable and serve a useful purpose in managing the needs of the Private Capital Members. A few commented that dealing with the Members’ Agents takes up a disproportionate amount of management time as compared with the importance of their overall capital contribution.

There was a widely held view that the Members’ Agents need more generally to refresh their offering to the Market in response to competition from more sophisticated capital sources.

FREEHOLD TENANCY IN PERPETUITYWhilst there was an almost universal view among Managing Agents that they would prefer all tenancy to be subject to commercial negotiation rather than governed by the LSAA, there was an acceptance that there was no realistic and cost-effective route by which existing Freehold Tenancy participations could be changed. Even those Managing Agents whose views of Private Capital were at the negative end of the range were accepting of this fact. The expectation is that, over time, and given the offer of wider advantages from limited tenancy opportunities, the proportion of Private Capital based on Freehold Tenancy will reduce as other forms of Private Capital increase.

The authors understand that the Corporation of Lloyd’s has, in the past, received legal advice from outside Senior Counsel on the legal rights attaching to syndicate participation. Clearly, these legal issues would need to be considered fully if there were any suggestion that a change to the participation of Private Capital should be mandated.

COSTS OF UNALIGNED / PRIVATE CAPITALThere have been numerous examples of significant amounts of Private Capital support for syndicates having been raised by Members’ Agents in short timeframes. Private Capital has proved itself


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responsive to needs and open to opportunities, with the Private Member being prepared to make quick decisions.

This has enabled the Managing Agent to raise significant capital at a cost that is close to zero; very much cheaper and quicker than raising capital through other sources. In addition, Private Capital pays the Managing Agent an annual management fee and a profit commission upon the closure of each Underwriting Year of Account.

Having said that, there are certain structural costs inherent in the Lloyd’s Annual Venture structure. These costs are not driven by Private Capital but are a consequence of Unaligned Capital participation from whatever source. However, these are ultimately not costs to Lloyd’s since they are all recovered from the Unaligned Capital Member under the “user pays” principle.

LLOYD’S ROLE IN MARKET REGENERATIONThe Lloyd’s Vision 2025 document specifically sets out to encourage new entrants to the Market from overseas trade capital providers. This is recognised as a success by the Managing Agency community, but there is also a widely held view expressed by them that this has been to the detriment of Lloyd’s-centric business opportunities.

There exists among a significant majority of those interviewed a belief that Lloyd’s should be positively discriminating in favour of new Lloyd’s-centric start-ups. There was strong agreement from amongst the Managing Agency community that the long term interests of Lloyd’s require it to focus on the nurturing of new and existing Lloyd’s-centric businesses.

Today, high class underwriters and teams are finding it difficult to start new Lloyd’s syndicates and are being lost to Lloyd’s. Instead, they are frequently joining one or other of the new breed of London Market based Managing General Agents (“MGA”). Lloyd’s reputation as a nursery for industry talent is precious and should be preserved. It is perceived that it is in Lloyd’s own best long term interests that there is a significant core of businesses that believe in, and will fight for, the Lloyd’s model and help it to rebuild as and when that is required.

The majority of Managing Agents believe that the preservation of a significant core of Lloyd’s-centric businesses is of such importance that there should be positive encouragement by Lloyd’s of such syndicates. Private Capital can play a significant role in this regenerative process.

DEVELOPMENT OF STRUCTURES FOR PRIVATE CAPITALGeneral – In order to increase the opportunities for Private Capital in the Lloyd’s Market, new structures and methods of deploying capital need to be considered by the Private Capital community. If Private Capital can be supplied in an acceptable form, without the requirement for Freehold Tenancy in Perpetuity, then it is acknowledged that more opportunities to participate on syndicates currently closed to Private Capital and opportunities to grow with existing syndicates will result.

A range of different suggestions was made that could offer Managing Agents a route to access Private Capital. Each of these needs overt support (some active support and others merely passive support) from Lloyd’s in some way or other. All have the potential to attract capital from the Private Wealth Funds who are logical supporters of the Lloyd’s Market but which currently have very little involvement.

Pooled Participations – This concept, although it has no legal status, has been in existence in the form of a Members’ Agent Pooling Arrangement (“MAPA”) for many years. A group of individual Private Capital Members (including Unlimited Members, Namecos, LLPs and SLPs) pool their capacity and appoint the Members’ Agent to decide those syndicates upon which the MAPA participates. Such syndicate participations are based on the LSAA or on negotiated terms but offer the larger blocks of capital requested by Managing Agents.

In the majority of respects, pooled underwriting arrangements in the form of a MAPA meet many of the conditions regarded as attractive by those Managing Agents interviewed. The concept of a single syndicate MAPA could be adapted to support SPSs and new syndicate start-ups.


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Discretionary Funds – The concept of a Discretionary Fund through which Private Capital can participate in the Lloyd’s Market is seen as an attractive proposition. In particular it is perceived that dealing with a single mutual fund, negotiating through a single principal with the authority to commit the fund, was a preferred way of accessing a large pool of Private Capital at Lloyd’s.

The Discretionary Fund could, in addition, support the Managing Agents’ own Aligned Corporate Member. It could take a proportionate share of the Aligned Corporate Member result or, alternatively, it could participate in an excess of loss capital stack.

The investors in the Discretionary Fund would be shareholders. They would be able to buy or sell their shares at any time based on a price negotiated between the parties or, if listed, on a recognised Stock Exchange.

Special Purpose Syndicate (“SPS”) – Whilst not a new concept, the provision of Private Capital in support of a SPS remains an attractive opportunity. The structure has been successfully deployed by a number of Managing Agents and is seen as a most useful tool.

The SPS has also been a success in the view of the Members and the Members’ Agents. It is now nine years since the first SPS and the Market is of the view that certain aspects of their existence could do with a refresh. In particular, Lloyd’s is requested to consider whether it is now appropriate for the SPS to be perceived as more of a long term vehicle and to allow an RITC to occur directly into a subsequent year of the SPS.

Quota Share Syndicate (“QSS”) – A common tendency among Managing Agents is to view Private Capital as effectively a capacity quota share of the syndicate. It is thus a short jump to suggest that Private Capital might actually participate in business through its own QSS.

Private Capital could capitalise a Lloyd’s syndicate whose sole purpose is to provide capital to other syndicates or to write proportional reinsurance of those syndicates. This would enable Private Capital to participate on a portfolio of risks which might otherwise be closed to it. The QSS would be managed by a third party Managing Agent in order

to reduce conflicts of interest and would require an experienced underwriter as its designated underwriter.

The idea of a QSS was considered attractive by a meaningful minority of the Managing Agents interviewed, including several who currently have no Private Capital participation.

One way in which a degree of market tracking might be possible would be to create a syndicate which exclusively underwrites a line on one or more of the Broker Facilities in the market. The concept of a Broker Facility Syndicate was raised by a limited number of interviewees and is worthy of further research.

Contingent Capital Structures – The logic of having a mechanism in place to enable capital to grow quickly in response to a market need is undeniable.

We found a lack of understanding amongst Managing Agents and a lack of clarity amongst Members’ Agents of how Private Capital could establish a contingent structure that would permit the Private Capital Member rapidly to deploy new capital.

In particular there was an enthusiasm for splitting the regulatory approval process so that the Private Capital vehicle can be approved but then left “on the shelf” without being capitalised to underwrite. Only when the desired opportunity arises would the vehicle be provided with sufficient capital to underwrite.

Lloyd’s should make the market more aware of the feasibility of creating Private Contingent Capital Structures. This would offer a mechanism for rapid growth following a dislocating market event and we believe would also be attractive to Private Wealth Funds.

The establishment of such a mechanism is also a useful hypothesis upon which Lloyd’s might discuss post-disaster recovery plans with the Prudential Regulation Authority (“PRA”) to ensure the required regulatory endorsement and approval is in place.

1INTRODUCTION


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INTRODUCTION TO THE 2016 PRIVATE CAPITAL REPORTThis Report (the “2016 Private Capital Report”) was commissioned by four parties:– The Association of Lloyd’s Members (“ALM”), and the three Members’ Agents:– Alpha Insurance Analysts Ltd, Argenta Private Capital Ltd and Hampden Agencies Ltd, and with the support and encouragement of the Chairman of Lloyd’s.

The purpose of this Report is to identify the views of a range of Lloyd’s Managing Agents and other Market participants on the provision of Private Capital to the Lloyd’s Market, including the opportunities available to Private Capital and how it might best be deployed in the future.

This 2016 Private Capital Report has been prepared by Ian Clark and Christopher Harman (Curriculum Vitae attached in Appendix 4). With the exception of our responsibilities to the ALM and the three Members’ Agents who commissioned the 2016 Private Capital Report, we accept no responsibility or liability for any loss to any person acting or refraining from acting as the result of any statement, fact, figure, expression of opinion or belief contained in this Report.

This 2016 Private Capital Report is the formal conclusion of the project commissioned by the ALM and the Members’ Agents. If any individuals or interested parties wish to raise issues pertaining to any aspect of the 2016 Private Capital Report and its contents, they are requested to do so via the ALM or the Members’ Agents. (See back cover for contact details).

PREVIOUS REPORTS ON LLOYD’SThere have been several reports commissioned on Lloyd’s, and in particular the role of Private Capital within the Lloyd’s Market, over the years. The most relevant of these are:-

• The Future Development of Lloyd’s and the Implications for Traditional Names by Mercer Management Consulting Inc. (the “1997 Mercer Report”) (Ref. 1)

• The Annual Venture:- A Review by Sean McGovern and Andrew Thomas of Lloyd’s (the “2006 Annual Venture Report”) (Ref 2)

Highlights from these are contained in Appendix 1.

DEFINITION OF PRIVATE CAPITALFor the purposes of the 2016 Private Capital Report, Private Capital is broadly defined as “capital provided by private individuals trading as an Unlimited Name, a Limited Liability Company (“Nameco”), a Limited Liability Partnership (“LLP”) or a Scottish Limited Partnership (“SLP”)”.

Private Capital represents insurance underwriting at Lloyd’s by individuals or groups of individuals as opposed to corporate participation by insurance companies, banks, investment funds or hedge funds. We consider that participation by a Private Wealth Fund or those specialist funds backed by Private Capital should be considered as part of the Private Capital constituency. They are akin to Private Capital, although they are not currently a significant feature of the Market.

Participation can be on a variety of bases. Up to 2003 this could only be as an unlimited liability Name and, since then, a limited liability vehicle. Participation may be on an individual basis via a Nameco, LLP or SLP or through a collective vehicle such as a Members’ Agent Pooling Arrangement (“MAPA”), a multiple ownership Nameco, LLP or SLP. There are also a small number of specialist funds whose private shareholders participate through a Nameco, or similar, owned by the fund.

VOTING STRUCTUREThe interests of Private Capital and the administration of their participation in Lloyd’s are handled by the Lloyd’s Members’ Agents. The Association of Lloyd’s Members is in effect the trade association for Private Capital, describing itself as “The Voice of Independent Capital at Lloyd’s”. Individual External Members of Lloyd’s have representation on the Council of Lloyd’s. However, this Council membership does not represent all the Unaligned Capital, whose interests are commonly the same as those of Private Capital at Lloyd’s.

The adoption of a number of the new Private Capital structures identified within this Report will require a re-examination of the definition of an “Individual External Member”. Otherwise some of the Unaligned non-insurance industry capital Members will effectively be disenfranchised.


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2PRIVATE CAPITAL

AT LLOYD’S – STATISTICS


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PARTICIPATION OF PRIVATE CAPITAL AT LLOYD’SSince 2007 the amount of Private Capital capacity within Lloyd’s has actually shown an increase from £2.5 billion to £2.7 billion (plus 8%), but it has been diluted as Corporate Capital has increased more rapidly (plus 68% for the overall Market).

Within Private Capital there has also been a change of mix as the number of unlimited liability Names has continued to fall, whilst the number of limited liability vehicles has risen. It should be noted that behind many Namecos, LLPs or SLPs there are multiple shareholders or partners. It is usual to find family members as directors, shareholders or partners with the expected outcome that ownership has been or will be handed down to future generations.

The Members’ Agents are unanimous in stating that most current Private Capital Members have the ability to increase their current underwriting capacity significantly were a market-changing event to occur. To their knowledge, many Private Capital vehicles are significantly over-capitalised and their main problem today is the limited number of opportunities to deploy this capital.

Lloyd’s Capacity and Private Capital Capacity - 2007 to 2016

2007 2008 2009 2010 2011 2012 2013

Lloyd’s Capacity £bn 16.5 16.1 18.1 23.0 23.3 24.2 25.0

Private Capital £bn 2.5 2.4 2.4 2.8 2.7 2.8 2.8

Private Capital % 15% 15% 13% 12% 12% 11% 11%

2014 2015 2016 TOTAL GROWTH 2007-2016

Lloyd’s Capacity £bn 26.5 26.3 27.7 Plus 68%

Private Capital £bn 2.8 2.7 2.7 Plus 8%

Private Capital % 11% 10% 10%

Source: Lloyd’s Market Services / Members’ Agents

Numbers of Active Lloyd’s Members - 2009 to 2016

2009 2010 2011 2012 2013 2014 2015 2016

Namecos 464 547 589 622 678 741 900 929

LLPs 554 664 698 708 719 721 650 625

SLPs 118 116 111 104 96 83 62 53

Unlimited Liability 773 700 639 587 529 447 327 295

Total Private Capital 1,909 2,027 2,037 2,021 2,022 1,992 1,939 1,902

Corporate Capital 102 116 129 142 130 143 153 152

Source: Lloyd’s Market Services


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INVESTMENT RETURNS TO PRIVATE CAPITALFor some years the Lloyd’s Market has been delivering healthy profits, permitting a steady build-up of its capital base. Thus the insurance sector, and Lloyd’s in particular, has been an attractive home for surplus investor capital seeking strong returns.

PRIVATE CAPITAL “NEW MONEY” CAPACITYThe ALM shows statistics for “New Money” Nameco, LLP and SLP capacity during the last fourteen years since 2002, the time when the premium rates shot up following the World Trade Center terrorist attack. These were gathered from the records of the Members’ Agents and show that there has been continuing and significant interest from new Private Capital.

Investment Returns to Private Capital - Based on an Average Private Capital Member’s Portfolio

Profit Percentages per £1 of Syndicate Capacity

Year of Account 2002 2003 2004 2005 2006 2007

Return on Capacity 15% 22% 12% 4% 26% 18%

Year of Account 2008 2009 2010 2011 2012 2013

Return on Capacity 9% 19% 3% 7% 12% 12%

Source: Association of Lloyd’s Members / Syndicate Research Ltd

Cumulative “New Money” Nameco, SLP and LLP Capacity (£m)

2002 2003 2004 2005 2006 2007 2008

Nameco 9.4 52.8 87.7 93.6 108.3 129.5 146.5

SLP 1.3 27.3 28.2 39.2 40.2 40.2 41.2

LLP 0.0 0.0 0.0 0.0 0.0 24.2 61.9

TOTAL 10.7 80.1 115.9 132.8 148.5 193.9 249.6

2009 2010 2011 2012 2013 2014 2015

Nameco 151.1 298.6 320.1 335.3 366.7 384.7 397.6

SLP 42.5 42.5 42.5 42.5 42.5 42.5 42.5

LLP 72.4 125.8 139.6 149.0 151.9 152.3 152.3

TOTAL 266.0 466.9 502.2 526.8 561.1 579.5 592.4

Source: Association of Lloyd’s Members / Members’ Agents

Private Capital might today be expected to have a capital ratio of approximately 50% of syndicate capacity based on a spread underwriting portfolio, although in prior years this percentage has been lower. As a result, the above returns can be considered stellar over an extended period.


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3THE ANNUAL VENTURE


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UNALIGNED CAPITAL / PRIVATE CAPITALParticipation in the Lloyd’s Market is based on the Annual Venture. The Annual Venture is built around the concept of a mixed “Unaligned” capital base (as opposed to an “Aligned” capital base where the totality of capital for a syndicate is provided by the owner of the Managing Agency). The largest element of Unaligned Capital is Private Capital.

The rating agencies view Unaligned / Private Capital as a significant source of advantage to Lloyd’s. Not only does it provide an alternative source of capital unavailable to other insurance entities, but its existence underpins the mutual structure, the core concept behind the Lloyd’s Market. The Lloyd’s mutual structure, with each syndicate trading independently but with all ultimately supported by the Central Guarantee Fund, is a highly efficient capital structure that would probably be impossible to replicate today.

The 2006 Annual Venture Report identified key advantages for Lloyd’s and Unaligned (including Private) Capital as:-

• The Annual Venture allows capital to enter through a new Member which can invest in a specific Underwriting Year of Account and is ring-fenced from the past;

• There are certain tax advantages associated with the Annual Venture, including the deferral of tax on underwriting profits for up to three years;

• Profits are taxed as trading income;

• Fungibility of the amount of capital required of the Member to support their underwriting, their Funds at Lloyd’s (“FaL”), allows Members to invest in several syndicates, giving spread and thereby generating a lower capital ratio. This is a key advantage for Unaligned Capital, who traditionally participate at Lloyd’s with a much lower capital ratio than an Aligned Member; and

• The Annual Venture promotes full release of profits and optimal regulatory capital levels at Lloyd’s.

OTHER ASPECTS OF UNALIGNED CAPITAL / PRIVATE CAPITALThere are certain structural matters associated with the Annual Venture:-

• The Annual Venture concept dictates that the required capital for all Members, both Corporate Capital and Unaligned / Private Capital, is set at some stage during the year. In Lloyd’s terminology this is the “Coming into Line” (“CiL”) date;

• There are two CiL dates:- a mid-year one in June following the distribution of the profits from the closed Underwriting Year of Account and a final one at the end of November in order to ensure that sufficient capital is in place to support the underwriting for the following Underwriting Year of Account;

• The business planning process is driven by the Annual Venture timetable. Recent changes to the business planning timetable have streamlined the process;

• The capacity auctions, seen by many as driving irrational business planning timetables, have been moved to a less disruptive date during November;

• If the Reinsurance to Close (“RITC”), the mechanism for closing an Underwriting Year of Account, cannot be effected after thirty-six months, this delays the release of the investors’ capital;

• There are difficulties in trading Members’ positions on open Underwriting Years of Account, thereby reducing the ability to exit the investment early and realise any profit or loss. Corporate Members may be bought or sold but individual syndicate shares may not, since this would create administrative difficulties;

• Syndicates with Unaligned / Private Capital may find reacting to any need to increase the syndicate capacity other than at 1st January to be cumbersome. However, the difficulty of mid-year capacity increases has very largely been solved by the introduction of the SPS;

• The Annual Venture can be seen as a disincentive to business development for the longer term. Fixed assets cannot be held at syndicate level;

• The Managing Agent may not retain profits in order to benefit future investors in the syndicate; and

• A non-permanent capital base can in theory impact business stability and can drive a short term view of the business, deterring investment in the future and product innovation.

The points made in the 2006 Annual Venture Report as to the positive aspects and the structural matters relating to the Annual Venture remain the same today.


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4CURRENT MARKET

CONDITIONS


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THE LLOYD’S MARKET IN THE WORLD OF INSURANCEThe Lloyd’s Market has seen a remarkable transformation from its troubled status in the early 1990s. Today it is seen as having a very strong brand that is attracting participation from insurance companies and investors from all over the world. Its global network of licences has huge attractions to insurance companies whose geographical reach is otherwise limited.

The Lloyd’s Market is now regarded as the premier global market for specialist lines of business. In addition, the London Market, including Lloyd’s, is one of the major global hubs for reinsurance business. It is now difficult to perceive how this position might change. There are, however, a number of headwinds in the current marketplace which are making it increasingly challenging for Private Capital.

OVER-SUPPLY OF CAPITALIn Lloyd’s, as elsewhere in the global insurance industry, there is currently an over-supply of capital and an under-supply of opportunities for its deployment. Consequently, as a result of this surplus capital, rates on the original insurance and reinsurance business continue to be under pressure as insurers and reinsurers seek to maintain market share and/or grow their businesses. Given the continuing volume of excess capital and sustained low investment returns to be earned elsewhere, there are no signs of this competitive situation changing anytime soon.

RELIANCE ON RESERVE RELEASESThe good results at Lloyd’s, which is predominantly a global specialist insurance and reinsurance market, have been helped by a sustained abnormally low incidence of major natural catastrophe losses. For recent years, the pure underwriting year profit margins have reduced, but the overall declared results have been assisted by the release of surpluses from back year claims’ reserves. Many of these claims’ reserves were built up in the profitable period 2002 to 2010, but these years do not offer an endless supply of reserve releases. In the years since 2010, profitability margins have been under greater pressure and therefore the potential for future reserve releases of a similar magnitude from more recent underwriting years has become more challenging.

FLIGHT TO SCALE – HAVES AND HAVE-NOTSThe global insurance markets are currently in the grip of a flight towards scale, and this is also impacting the Lloyd’s Market. Specialist insurers and reinsurers are being driven towards ever increasing levels of capitalisation and, as a result, mergers and acquisitions activity is at a high.

Lloyd’s is a market in which the participants include both divisions of some of the largest global insurance groups and also smaller independent businesses. The flight to scale is impacting the smaller Lloyd’s syndicates who frequently participate via following lines on syndicated risks. Some are therefore finding it increasingly difficult to maintain their participation on risks.

BROKER FACILITIESTo compound this issue, the major brokers, who have been compiling large amounts of data, are now seeking to put this data to work. The Market has become more polarised, with the large brokers signalling their wish to deal with fewer insurers and the smaller syndicates being squeezed by their larger brethren. This is illustrated by the recent introduction and growth of broker facilities, whereby sections of a broker’s account are bundled and offered to the Market to be underwritten on a pre-aligned basis, participating on all risks in the broker portfolio. Only the leading underwriter or underwriters have the ability to select business on a risk-by-risk basis and the following market must follow blind.

These facilities, without exception, carry additional fees payable to the broker for the management of the account and for various services that they provide relating to the business. These additional fees are retained by the broker to the detriment of underwriting margins for all insurers who participate on the facility. The broker’s preference is usually to have a limited number of larger insurers on the facility.

For the smaller Lloyd’s syndicates, these broker facilities offer a stark choice; either to participate in underwriting on a blind basis that offers the prospect of diminished returns, or alternatively to compete for a smaller pool of open market business.


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EXTERNAL VIEWS ON PRIVATE CAPITALThe 2006 Annual Venture Report commissioned by Lloyd’s entitled “The Annual Venture:- A Review” examined the Annual Venture structure that is fundamental to Lloyd’s and concluded that:-

• “….. the presence of unaligned capital in particular represents a source of advantage for Lloyd’s;

• This diversity of capital is also regarded as a positive by the rating agencies;

• It is seen as supporting mutuality;

• It is offering the Lloyd’s market access to a flexible alternative source of capital that is not easily available to the wider insurance industry; and

• The annual venture supports this diversity, not just facilitating the participation of private capital but providing a unique means for all types of capital to enter the market and support insurance business”.

The 2006 Annual Venture Report also concluded that:-

• “….. if unaligned capital is to maintain or grow its share of the Market’s capacity, the basis of the participation must change to become more attractive to a wider group of managing agents. To succeed, the terms of participation need to be flexible and subject to the normal forces of commercial negotiation and innovation. The current rigid standard form agreement does not represent a sustainable model for the future participation of unaligned capital”.

These sentiments remain the same today.

According to analysis work done by the ALM on the Lloyd’s Market (Ref. 3):-

• “There is neither a shortage of interest in Lloyd’s, nor a shortage of candidates to become Names. Lloyd’s has lived down the unhappy image which it gained from two periods of serious losses, suffered in 1988 to 1992 and 1998 to 2001, but expanding the overall share of Names’ underwriting remains a challenge”.

We concur with these views.

MANAGING AGENTS’ VIEWS ON PRIVATE CAPITALThe Managing Agent community falls neatly into two camps. There are those Managing Agents that are effectively “branch offices” of a major global insurer or reinsurer, operating as either a geographical or product base; and there are those that see themselves as managers of their own capital and other third party capital.

The view of the great majority of the Managing Agents is that Private Capital is a stable, knowledgeable, and long term business partner. Private Capital pays fees to the Managing Agent in order to participate, plus a profit commission at the closure of an Underwriting Year of Account to reward good underwriting. It also comes without the desire for reciprocity in business dealings and is therefore no threat to a Managing Agent’s franchise. Private Capital is recognised as having many attractions by virtually all of the Managing Agents interviewed.

Although some found certain frustrations in dealing with Private Capital and the Members’ Agents, the majority view among Managing Agents was that dealing with Private Capital is different but no more laborious than other forms of capital.

What was apparent from both those Managing Agents who currently have Private Capital capacity and those that do not, is that there is a willingness to grow their Private Capital share. They are welcoming to the principle of Private Capital; they just do not wish to grow this participation in its traditional form.

The issues created by the Lloyd’s Standard Agency Agreement, in particular the subject of Freehold Tenancy in Perpetuity, is preventing greater participation on existing syndicates with Private Capital, as well as shutting the door to new opportunities to participate on syndicates which do not currently have Private Capital.

By insisting on Freehold Tenancy, Private Capital cannot grow; at best it can stand still; in reality it is likely to shrink year-on-year. However, new structures could be adopted that enable Private Capital to participate on a wider range of syndicates and grow its share on existing syndicates.


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MANAGING AGENTS’ RELATIONSHIPS WITH MEMBERS’ AGENTSThere was a wide range of views expressed by the Managing Agency community on their relationship with and the performance of the Members’ Agents. Most Managing Agents agree that the Members’ Agents are knowledgeable on the business and the intricacies of Lloyd’s and serve a useful purpose in managing the needs of their Private Capital Members.

A few Managing Agents commented that dealing with Members’ Agents takes up a disproportionate amount of their time as compared with the importance of their overall capital contribution to the syndicate. Several feel that there is an inclination for the Members’ Agent to seek to interfere in the syndicate’s business and, as compared with, say, a trade capital participant on the syndicate, they demand more detail and are less incisive in their approach. There is a fear that an unexpected negative turn of events has the potential to create strained relations between the parties and to waste a great deal of management time.

Others, being the majority who deal with Private Capital, find the relationship positive and not unduly onerous. However, the view was widely held that the Members’ Agents need more generally to refresh their offering to the Market as competition is fierce from more sophisticated capital sources.

A number of participants hold the view that the relationship between the Members’ Agents and the Managing Agent providers of syndicate turnkey services needs to improve. On the face of it, the interests of the two parties are closely aligned. A new syndicate is an obvious home for Private Capital and yet there does not always seem to be the close working relationship that would be beneficial to both parties and transparency on costs.

LLOYD’S STANDARD AGENCY AGREEMENT AND TENANCYThe LSAA establishes a number of rights and obligations and is inflexible. The right of a Member of a syndicate to Freehold Tenancy in Perpetuity is a particular issue of contention. In an era where there is so much capital chasing good opportunities to invest in the insurance sector, if Private Capital insists on such full tenancy, it

is putting itself at a commercial disadvantage to other sources of capital.

The views expressed by all the Managing Agents interviewed on tenancy were:-

• Tenancy should be negotiable on a commercial basis without the need to adhere to the LSAA. Aspects such as length of tenancy, pre-emption rights and fiduciary duties should be the subject of commercial negotiation;

• Tenancy needs to be more of a two way street and that, in exchange for longer term participation, Private Capital needs to be willing to give greater notice of its withdrawal in order to assist in business planning;

• Concepts such as both sides committing to a minimum period of tenancy are widely endorsed in favourable terms by Managing Agents;

• On new syndicate start-ups Freehold Tenancy in Perpetuity, or at least a longer minimum period of tenancy to allow start-up costs to be amortised over a period and profits to be made, is acknowledged as being appropriate;

• The concept of a minimum hurdle of profitability for a new syndicate start-up before notice can be given also received favour; and

• The LSAA poses significant issues for publicly quoted Managing Agencies as agency law effectively overrides even the UK listing rules.

In practice, in the period following the 2006 Annual Venture Report, the LSAA has already been subject to considerable variation. Various lengths of tenancy, from freehold to fixed short term periods on SPSs have been negotiated.

FREEHOLD TENANCY IN PERPETUITYWhilst there is an almost universal view among Managing Agents that they would prefer all tenancy to be subject to commercial negotiation rather than governed by the LSAA, there is an acceptance that there is no realistic and cost-effective route by which existing Freehold Tenancy participations can be changed. Even those Managing Agents whose views of Private Capital are at the negative end of the range are accepting of this fact.


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The authors understand that the Corporation of Lloyd’s has, in the past, received legal advice from outside Senior Counsel on the legal rights attaching to syndicate participation. Clearly, these legal issues would need to be considered fully if there were any suggestion that a change to the participation of Private Capital should be mandated.

The expectation is that, over time, and given the offer of wider advantages from limited tenancy opportunities, the proportion of Private Capital based on Freehold Tenancy will reduce as other forms of Private Capital increase.

LONGER TIME HORIZONS FOR PRIVATE CAPITAL PARTICIPATIONThe Managing Agents require a greater level of certainty as to capital support from one year to the next. Therefore they would favour longer periods of notice of withdrawal of capacity, with maybe a rolling two year or three year commitment from both parties.

DELIVERY OF LARGER BLOCKS OF CAPITAL TO A MANAGING AGENTThere was a regularly expressed desire among the Managing Agents interviewed that they would prefer to access capital in larger blocks as this would assist in the capital building process. They would also prefer to be dealing with Private Capital on the basis that the representative of that capital had a level of authority to commit the capital rather than acting as agent.

In response to these comments, the Members’ Agents observe that they do in practice have a high level of certainty in delivering what they are asked to deliver. It has been rare for them to fail and there are examples of significant amounts of new Private Capital being gathered within short timeframes. Views to the contrary, they maintain, are more perception than fact. They also acknowledge that, in practice, tenancy on new opportunities is already a matter for commercial negotiation.

Structures that might achieve these goals are considered later in this Report.


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6COSTS OF

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COSTS OF RAISING CAPITALThere have been numerous examples where significant amounts of Private Capital support for syndicates have been raised by the Members’ Agents in short timeframes. Private Capital has proved itself responsive to needs and open to opportunities, with the Private Capital Member being prepared to make quick decisions.

This has enabled the Managing Agent to raise significant capital at a cost that is close to zero; very much more cheaply and quickly than raising capital through other sources. In addition, Private Capital pays the Managing Agent an annual management fee and a profit commission upon the closure of each Underwriting Year of Account.

LLOYD’S COSTS OF ADMINISTRATIONLloyd’s Market Services’ costs of administering Private Capital might be expected to be greater than for Aligned Capital due to the number of Private Capital Members (1,902) as compared with Aligned Members (152). In practice these costs are wholly recoverable under the “user pays” principle.

The Lloyd’s budgeted costs are:-

• Lloyd’s Market Services department involves circa 70 people servicing both Corporate and Individual Members, many of which would still be required were there to be no Private Capital;

• The Corporation of Lloyd’s 2016 Budget identifies the costs of the Market Services department as being direct costs of £6.4m plus allocated overheads of £2.3m, amounting to a total of £8.7m;

• The Corporation of Lloyd’s 2016 Budget identifies the income recoverable for the Market Services department as being £8.8m; and

• The net costs to Lloyd’s are therefore zero.

For those syndicates with Unaligned Capital, the most widely held view was that there are few issues and very few costs associated with dealing with Private Capital other than a certain amount of management time spent in meetings with the Members’ Agents.

CAPACITY TRANSFER PANELAn aspect that is driven by the existence of Private or Unaligned Capital is the Capacity Transfer Panel. This is a committee whose role is to adjudicate in circumstances where there may be conflict of interest issues between the Managing Agent and its Unaligned Capital Members. In practice, we are advised by Lloyd’s that the panel has few issues to resolve during the course of an average year.


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THE CORPORATION OF LLOYD’S – MARKET REGENERATION The Lloyd’s Vision 2025 (“Vision 2025”), first published in May 2012 (Ref. 4), specifically sets out to encourage new entrants to the Market from overseas trade capital providers, especially those from the developing world. This approach is generally supported by the Managing Agents.

However, there is a strong belief amongst the majority of those Managing Agents interviewed that it is just as important to encourage new businesses with a more Lloyd’s-centric outlook. Overseas trade capital is mistrusted in terms of its long-term commitment to the Lloyd’s Market. There is a fear that an overseas insurer may abandon its involvement when faced with losses at Lloyd’s or problems in its home market. It will be those Lloyd’s entities which believe in or are dependent on the Lloyd’s Market that will provide the core motivation for its survival.

PERCEPTION OF BIAS AGAINST LLOYD’S-CENTRIC START-UPSThere is a perception among many of those Managing Agents interviewed that, in recent years, there has been a two tier entry process for new Lloyd’s businesses. It is perceived that overseas trade capital is being favoured over new Lloyd’s-centric teams or individuals. A majority of those interviewed believe that the opposite should be the case and that Lloyd’s should be positively discriminating in favour of the Lloyd’s-centric start-up.

One of the concerns expressed over new Lloyd’s-centric start-up businesses is the fear of cannibalising the business within the Market. However, it is observed by many among the Managing Agency community that, by definition, the operation of a marketplace involves a significant level of cannibalisation. Another small new entrant will make no material difference to this process and so the problem is over-stated.

What is being seen today is that high class underwriters and teams are finding it difficult to start new Lloyd’s syndicates and are being lost to Lloyd’s. Instead, they are joining one or other of the new breed of London Market based Managing General Agents (“MGA”). It is ironic that these MGAs, which are operating outside the Lloyd’s Market, are more often than not writing business on behalf of Lloyd’s syndicates. Thus the talent is being lost to Lloyd’s, but the business is being written in

Lloyd’s, with Lloyd’s having less direct influence over the underwriting.

Lloyd’s reputation as a nursery for industry talent is precious and should be preserved. It is in Lloyd’s own long term best interests that there is a significant core of businesses that believe in, and will fight for, the Lloyd’s model and help it to rebuild as and when that is required.

Lloyd’s itself challenges the perceived bias in favour of external capital. It points out that the current market conditions, the need for scale, and the increased operational and compliance costs for insurers, make the traditional regeneration of Lloyd’s-centric start-ups more difficult.

START-UP STRUCTURESOne concern that was expressed by Managing Agents was the limited choice of turnkey Managing Agents to sponsor and host new syndicates. It was felt that Lloyd’s should do more to promote wider options. These might include different structures to sponsor new syndicates.

One thought that was mentioned by more than one Managing Agent interviewed was the idea that an existing syndicate might act as a chaperone for a new team of underwriters. The eventual aim would be for the new team to become an independent syndicate. There should certainly be an expense advantage to this route for both parties, as well as possible business advantages to each. The structure has worked well on a number of occasions in the past and is still seen as a valid concept.

Private Capital, it is widely believed, can and should play a major role in supporting market regeneration and it is believed that Lloyd’s should be encouraging this.


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NEW STRUCTURESIt was apparent that many of the Managing Agents whom we met had put a great deal of time and effort into thinking about the forthcoming interview. This was much appreciated and led to some very constructive and innovative discussions.

DELIVERY OF PRIVATE CAPITAL - GENERALWith the exception of the odd “branch office” syndicate, there is a consistent and positive view towards Private Capital from the Managing Agent community. They are happy to grow the percentage of Private Capital participation on their core syndicates, but only if Private Capital presents itself in a different way. Chief amongst the features preventing Managing Agents from growing Private Capital participation is the subject of Freehold Tenancy in Perpetuity. Given the opportunity and the correct structure, Private Capital could considerably expand its share of Market capacity.

A number of most useful and interesting ideas to enhance the attraction of Private Capital came out of the interviews, which we outline and comment upon in the remainder of this section.

POOLED PARTICIPATIONSThe concept of a Member combining with other Members into a pool rather than individually stock picking is not new. MAPAs have been part of the Market for many years, albeit the structure has no legal status.

The MAPA serves many of the purposes for which other proposed new structures have been designed, including the delegation of a high level of authority to the Members’ Agents and their ability to deliver capacity to the Managing Agent in larger blocks.

What the MAPA has not done is to be deployed on syndicates which do not have Private Capital participation. This should be something that is encouraged in the future, with the terms of any syndicate participation being negotiable. In addition, the concept of a single syndicate MAPA to support SPSs and new syndicate start-ups is worthy of further consideration.

DISCRETIONARY FUND In the early days of Corporate Capital in the Lloyd’s Market, many of the Corporate Members established were owned by investment trusts listed on the UK Stock Exchange. Investors were able to buy and sell shares in the listed companies that were, in effect, discretionary investment funds investing in the Lloyd’s Market. Over time, as Corporate Capital evolved, these investment trusts were acquired by insurance groups and converted into dedicated Corporate Members. This early form of Corporate Capital has largely disappeared from the market. There remain only a limited number of discretionary funds backed by Private Capital. Several of the interviewees made positive reference to those that currently exist and to a recent scheme that failed to launch that would have operated in this way.

The concept of a discretionary fund through which Private Capital can participate in the Lloyd’s Market is seen by more than half of the Managing Agents interviewed as an attractive proposition. In particular, it is perceived that dealing with a single mutual fund, and negotiating through a single principal with the authority to commit the fund, was a preferred way of accessing Private Capital at Lloyd’s as compared with dealing with the traditional Private Capital Members via the Members’ Agents.

Among the suggested advantages are –

• The Discretionary Fund would have the advantage of scale. A significant capital commitment would be available from a single source;

• The manager of the Discretionary Fund would have full authority to commit the Fund rather than acting as agent;

• The Discretionary Fund could participate in Lloyd’s on a number of different bases:-

o It could underwrite in a similar fashion to a traditional Member via its own Underwriting Member subsidiary;

o It could support the Managing Agent’s own Aligned Corporate Member via a direct investment or through provision of capacity in the form of a Letter of Credit or Bank Guarantee; or

o The Fund could take a proportionate share of the Aligned Corporate Member’s result, akin to a quota share or, alternatively, it could participate in an excess of loss capital stack, choosing whether it wished to participate in working layer or excess layer risks.


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At present Private Capital is unable to participate directly on an Aligned Corporate Member either on a quota share basis or via a capital stack.

In summary, a Discretionary Fund would have more ways open to it to participate than are currently open to Private Capital in its traditional form and would deliver capacity in ways that are favoured by many Managing Agents.

The investors in the Discretionary Fund would be shareholders. They would be able to buy or sell their shares at any time based on a price negotiated between the parties or, if listed, on a recognised Stock Exchange. The shareholders would delegate the selection of syndicates to support to the manager of the Discretionary Fund. If desired, it could be divided into separate funds offering participations with varying levels of risk appetite.

The Discretionary Fund would be a logical way for an external Private Wealth Fund to participate in the Lloyd’s Market.

The interest among Managing Agents in supporting Private Capital delivered through a Discretionary Fund emanated not only from those Managing Agents who currently have Private Capital participation but also from those who do not. It is clear that such a structure would open up opportunities for Private Capital to support syndicates that are currently closed to it.

For Private Capital, it is important to note that an investor in the Discretionary Fund would not be an Underwriting Member of Lloyd’s. They would be an investor in a fund that itself would invest in Lloyd’s in one of several ways, including owning one or more Underwriting Members. The beneficial capital ratios enjoyed by a Private Capital Member would apply to the Discretionary Fund and not to the individual investor. Whilst taxation is outside the scope of this Report, it should be observed that the tax benefits available to a Private Capital Member of Lloyd’s may not be available to them as an investor in a Discretionary Fund.

SPECIAL PURPOSE SYNDICATE (“SPS”) The subject of the SPS received considerable attention in the 2006 Annual Venture Report and led to the introduction of the SPS concept.

A SPS offers a variation of the traditional form of Private Capital participation in Lloyd’s. Its form, as originally conceived, was to facilitate an expansion of capacity by means of a quota share of the host syndicate at a time of market dislocation, where the Managing Agent desired to expand its managed capacity.

Among its attributes was the ability to be deployed at dates other than 1st January. Prior to the establishment of the concept of the SPS, the only way that a syndicate could expand at short notice was through a Qualifying Quota Share (“QQS”). A large number of QQSs of Lloyd’s were written by major reinsurers in the period post the 2001 World Trade Center loss in 2002/2003/2004, enabling Lloyd’s syndicates to compete with a wave of new insurer start-ups in Bermuda. At this time, Lloyd’s Market capacity was in some disarray and additional new capacity was required. The SPS concept was a mechanism to raise new capital and to enable the re-rated business, post the major loss, to be retained within the Lloyd’s Market rather than the business going to outside reinsurers.

In recent years the SPS has evolved from its original purpose and is now perceived by many as a vehicle providing a “soft” route for overseas capital to enter the Lloyd’s Market. One of the key drivers of the SPS for many Managing Agents would seem to be that of reciprocity – bringing new business into Lloyd’s from new markets where the Lloyd’s Market share is low. Such a new SPS, because its core business is written as a quota share of an existing syndicate, is not subject to the same level of review and challenge as a new, independent syndicate start-up. Lloyd’s has recently tightened its rules on this approval process.

The 2006 Annual Venture Report envisaged the SPS becoming a significant feature of Private Capital participation in the future, as does Vision 2025. Whilst a number of SPSs have been created, they have not happened regularly and, to make it an effective and growing route for Private Capital, we believe a number of aspects of the SPS structure need to be revisited or reinforced.


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The provision of capital in support of a SPS remains an attractive opportunity for Private Capital and for the Managing Agent.

The SPS needs a number of attributes, several of which are already in place:–

• There should be a tried, tested and approved mechanism to start a SPS at dates during the year other than 1st January. At present quarterly start dates are possible;

• For several existing SPSs, the concept of a short-term structure has already evolved into a longer-term part of the capital structure for the host Managing Agency:–

o As a long-term partner there is a need for this to be recognised in the Reinsurance to Close (“RITC”) mechanism; and

o The SPS should be able to effect its RITC into its own following year rather than only back to its host syndicate as at present;

• If the SPS is a whole account quota share of the host syndicate, then a simplified form of the Syndicate Business Forecast (“SBF”) is appropriate; and

• If the SPS is a whole account quota share of the host syndicate, then there should be reduced requirements for quarterly monitoring and reporting.

Some of these recommendations were included in the 2006 Annual Venture Report and are currently in operation. Others need procedural changes. Further endorsement by Lloyd’s would be appropriate to ensure that these receive full attention.

QUOTA SHARE SYNDICATE (“QSS”)It is common among Managing Agents to view Private Capital as effectively a capacity quota share of the syndicate. It is thus a short jump to suggest that Private Capital might actually participate in other third party syndicates through its own Quota Share Syndicate (“QSS”).

The creation of a QSS backed by Private Capital was warmly supported by the Managing Agency community and deemed worthy of further consideration.

The structure envisaged would be for Private Capital:–

• To capitalise the Syndicate, a QSS;

Thereafter:–

• The sole purpose of the QSS would be to act as a capital provider to third party Lloyd’s Syndicates (and possibly insurers in the same group as the Lloyd’s Syndicate);

• There would need to be a designated named underwriter;

• The QSS would not write general business in the marketplace; and

• The structure would permit Private Capital to participate in the results of several syndicates (and possibly their sister insurance companies) which do not currently have Private Capital participations.

A similar structure to the QSS already exists within at least one Managing Agency in the Lloyd’s Market but exclusively transacting with that Managing Agency’s other managed syndicates. As a result, the structure would not seem to require any major regulatory changes.

The QSS could operate in one of two ways:–

Participation as a collective vehicle for Private Capital Members:–

• This would mean that the QSS was a single syndicate on which Private Capital Members could participate;

• The Private Capital Members would provide FaL to the QSS, which in turn would reinsure by quota share other syndicates; and

• In this way the Private Capital Members underwriting on the QSS should be able to achieve the same capital efficiency from a spread portfolio as they would if they had been Private Capital Members.

Participation as part of a Discretionary Fund:–

• This would mean that the QSS would be supported by a single Underwriting Member, which in turn was a subsidiary of a Discretionary Fund; and

• Private Capital would invest in the Discretionary Fund which in turn would create its own subsidiary Underwriting Member that would provide FaL to the QSS, which in turn would reinsure by quota share other syndicates.

Many of the Managing Agents interviewed saw Private Capital participation through a QSS as a potentially attractive and efficient mechanism for participation on their syndicates.


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BROKER FACILITY SYNDICATE The QSS concept might also be extended to participating on one or more of the major broker facilities, following a recognised Lloyd’s lead underwriter. Traditionally, Private Capital at Lloyd’s has focused on the “stock picking” approach. Even capital pooling arrangements such as MAPAs have focused on the selection of individual syndicate shares rather than seeking to track the market.

One way in which a degree of market tracking might be possible would be to create a syndicate which exclusively underwrites a line on one or more of the broker facilities in the market. Whilst not technically a quota share, this would in effect be a form of tracker vehicle in that it would follow the results of a proportion of the Market.

Unlike a QSS, a Broker Facility Syndicate would not receive the benefit of the underlying syndicate’s reinsurance programme and therefore would need to purchase its own reinsurance protections. It would, however, give Private Capital a means of participating on market risks which might otherwise be denied to it.

The concept of a Broker Facility Syndicate was raised by a limited number of interviewees and is worthy of further research.

CONTINGENT CAPITAL STRUCTUREPost a major loss event, Private Capital has in the past proved to be both flexible and resilient. A substantial “bank” of contingent capital could make a significant contribution at a time when the Lloyd’s Market required regeneration. It is virtually impossible, or expensive, to offer a guarantee that capital will be available when required. However, an alternative would be to have the structures in place that would enable additional capital to be deployed quickly when the opportunity arises. This is what is addressed under this section.

For Private Capital to participate at Lloyd’s as a Member it is required to go through a lengthy regulatory approval process. Only when this process has been completed can the Member be capitalised to underwrite.

We believe that these two processes, regulatory approval and underwriting capitalisation should be separated:–

Stage 1• To go through the regulatory permissions of the

Member;

• To capitalise the Member at a modest level below what is required to underwrite; and

• To do nothing else until the opportunity arises.

Stage 2• When the opportunity arises, rapidly to capitalise

the Member, in the knowledge that it has been pre-authorised, in order to commence underwriting.

This approach would enable Private Capital to react quickly to a capital opportunity or need. The Member would effectively be “on the shelf” and in a position to underwrite at short notice.

There is a fear among a significant number of the interviewees that one of the key risks for Lloyd’s is the reaction of the regulator, the Prudential Regulation Authority (“PRA”), post a major market-changing event. It is feared that the regulator’s focus might be on a number of distressed businesses, to the detriment of new capital seeking to enter the Market quickly in order to address the needs and take advantage of the opportunities that arise post a market-changing event.

It is crucial that Lloyd’s establishes an understanding with its regulator as to what might happen after such a major dislocation. The establishment of a Contingent Capital Structure such as is suggested would provide a platform for Lloyd’s to discuss post-disaster recovery plans with the PRA in order to achieve the required regulatory endorsement and approval. Absent such agreement, the theory and practice could prove to be very different.

We found a lack of understanding among Managing Agents and a lack of clarity amongst Members’ Agents as to how Private Capital could establish a Contingent Capital Structure. In particular, that a Private Capital Member can be formed and left “on the shelf” ready to be capitalised at the appropriate level to underwrite only when required. Lloyd’s needs to make the Market more aware of the feasibility of creating such Private Capital contingent structures and, in particular, that it is possible to separate the regulatory approval process for new Private Capital vehicles from their capitalisation for underwriting.


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RECOMMENDATIONSThroughout this 2016 Private Capital Report we have made a number of recommendations and suggestions as to how Private Capital might be better deployed in the Lloyd’s Market. In order to consider these further the respective parties of Lloyd’s, the Managing Agency community through the LMA, the ALM and the Members’ Agents need to undertake a number of actions. We have set these recommended actions out below for each party to consider further:–

LLOYD’S RECOMMENDATIONS• Provide positive endorsement to the outside world of

the benefits of utilising Private Capital at Lloyd’s;

• Consider how Lloyd’s might actively encourage Lloyd’s-centric start-ups;

• Promote to the Market a series of options by which Managing Agents can sponsor new syndicate start-ups, including the chaperoning by existing syndicates of new teams with the aspirations to form their own syndicate;

• Consider how it might be possible to refresh the rules around SPSs and in particular:-

o Allow a SPS to effect a RITC into the subsequent Underwriting Year of Account of the same SPS; and

o Whether a simplified form of SBF and quarterly monitoring and reporting is appropriate if the SPS is a whole account quota share of a host syndicate;

• Consider what infrastructure Lloyd’s would require of a Managing Agent that manages a Private Capital QSS;

• Consider what rules it may wish to apply if Private Capital were to support a syndicate dedicated to participation on Lloyd’s Market Broker Facilities;

• Clarify to the Lloyd’s community how Contingent Capital can be utilised by Private Capital sources by means of a partial authorisation of a Corporate Member then its subsequent rapid capitalisation following a market changing event; and

• Engage with the market and PRA to provide certainty to the process of rapid capital deployment following a market changing event.

MANAGING AGENCY RECOMMENDATIONS• Through the medium of the LMA, consider the

potential new structures for Private Capital outlined in this report, to include Discretionary Funds, QSS, Broker Facility Syndicates and Contingent Capital Structures;

• Establish a standing committee of the LMA, which meets a minimum of twice a year, to review new Private Capital initiatives; and

• For the turnkey Managing Agencies, consider how relationships with the Members’ Agent community could be improved and engage in positive dialogue.

MEMBERS’ AGENTS RECOMMENDATIONS • Revisit their stance on Freehold Tenancy in Perpetuity

and develop a commercial approach to tenancy for the future;

• Consider how the relationship with the turnkey Managing Agencies could be improved and engage in positive dialogue;

• Revisit how a MAPA with limited tenancy might be used to support SPSs and new syndicate start-ups;

• Consider how they might widen the pool of Private Capital sources by engagement with the Private Wealth Fund sector;

• Consider how Discretionary Funds might be utilised to provide Private Capital to support market opportunities and in particular:-

o Deployment of larger pools of capital;

o To make direct investment into Aligned Corporate Members;

o How a market to trade shares in a Discretionary Fund can be created;

o How Discretionary Funds might be promoted to the wider Private Wealth Management community; and

o Further investigate the taxation and other commercial implications of Discretionary Funds;

• Consider the likely appetite for Private Capital Members to support a Members’ Agent specific QSS;


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• Clarify the process by which Contingent Capital Structures might be set up for Private Capital and the means by which these might be rapidly capitalised following a market changing event; and

• Engage with Lloyd’s and the PRA to provide certainty on the process of rapid capital deployment following a market changing event.

ALM RECOMMENDATIONS• Seek to become the trade association representing

the interests of all Unaligned Capital.


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GLOSSARY AND REFERENCES


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Aligned Capital or Aligned Member – A Member of a syndicate which is directly or indirectly owned by the same firm that owns the Managing Agency of the syndicate.

Alpha Insurance Analysts Ltd – One of the three Lloyd’s Members’ Agents.

Annual Venture – The structure in which a group of Members comes together, forms a syndicate, and underwrites insurance business for a particular Year of Account.

Argenta Private Capital Ltd – One of the three Lloyd’s Members’ Agents.

Association of Lloyd’s Members (“ALM”) – The association that represents Private Capital Members of Lloyd’s. Membership is voluntary.

Broker Facility – A structure whereby a broker bundles its account, or significant portions of its account, and places it in the Market as a block of business. The Market must participate across the whole block of business rather than being able to underwrite individual risks. The leading underwriter or underwriters may have a level of discretion on each risk underwritten, but the supporting market follows blind.

Broker Facility Syndicate – A syndicate which exclusively participates on one or more Broker Facility.

Capacity Transfer Panel – A committee of Lloyd’s whose role is to adjudicate in circumstances where there may be conflict of interest issues between the Managing Agent and its Private Capital Members.

Central Guarantee Fund – The central fund of assets, being part of the Lloyd’s chain of security supporting each syndicate should it be unable to meet its insurance obligations.

Coming into Line (“CiL”) – A procedure, currently undertaken in June and November each year, which requires Members to demonstrate that they have sufficient eligible assets to meet their current underwriting liabilities and to support future underwriting before they may underwrite for the following Year of Account.

Contingent Capital Structure – A structure with regulatory approval that would permit (but not oblige) capital not currently underwriting to underwrite in the Market in the future.

Corporate Capital or Corporate Member – A corporate investor who is an Underwriting Member of Lloyd’s but who is not a Private Capital Member.

Corporation of Lloyd’s – The central corporate structure which facilitates the Lloyd’s Market and provides services to the market participants.

Freehold Tenancy – The right of a Member under the Lloyds Standard Agency Agreement to remain on a syndicate in perpetuity.

Funds at Lloyd’s (“FaL”) – Funds in approved form that are lodged and held in trust at Lloyd’s as security for a Member’s underwriting activities.

Hampden Agencies Ltd – One of the three Lloyd’s Members’ Agents.

High Premium Group (“HPG”) – The association that represents Private Capital Members of Lloyd’s who write a more significant underwriting capacity. Membership is voluntary.

Individual External Member – See “Private Capital”.

Limited Liability Partnership (“LLP”) – A partnership structure formed under UK law by an individual or a connected group of individuals which can participate as a limited liability Member.

Lloyd’s or Society of Lloyd’s – The Corporation of Lloyd’s and the marketplace that is the Lloyd’s underwriting room and all its constituent parts.

Lloyd’s Managing Agent – An underwriting agent which manages a syndicate, its employees and its administration.

Lloyd’s Market Association (“LMA”) – The association that represents Lloyd’s Managing Agents.

Lloyd’s Members’ Agent – An underwriting agent appointed by the Member to provide services, duties and advice in relation to the Member’s underwriting at Lloyd’s.

GLOSSARY


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Lloyd’s Standard Agency Agreement – A standard form agreement between Members of a syndicate and the Managing Agent setting out the powers and obligations of the parties towards one another. Among these are:-

i. the right to remain on a syndicate in perpetuity (subject to certain limited circumstances);

ii. the right to resign from a syndicate at short notice;

iii. pre-emption rights over any proposed increase in syndicate capacity;

iv. the requirement for Managing Agents to obtain approval of at least 75% of syndicate Members to an increase in syndicate capacity of more than 7.5%;

v. the power to prevent a Managing Agent doing anything that conflicts with the Member’s interests;

vi. the right to compensation where a Managing Agent breaches its fiduciary duties; and

vii. the restriction on the ability of a Managing Agent to increase fees and profit commissions which require Lloyd’s consent.

Managing General Agent (“MGA”) – An independent non-Lloyd’s underwriting agency business which has been appointed by one or more insurers or Lloyd’s syndicates to underwrite insurance business on their behalf.

Member or Underwriting Member – An individual Name or Corporate Member who provides capital in order to underwrite in Lloyd’s.

Members’ Agents Pooling Arrangement (“MAPA”) – An arrangement operated by a Members’ Agent whereby a number of Members combine to pool some or all of their underwriting capacity.

Name – An individual who is an Underwriting Member of Lloyd’s underwriting on an Unlimited basis.

Nameco – A limited liability Member which is owned by an individual investor or a connected group of individuals.

Pre-emption Rights – The right (but not the obligation) of a Member under the Lloyd’s Standard Agency Agreement to participate proportionately in any increase in the underwriting capacity of the syndicate.

Private Capital – Capital provided by private individuals, defined by Lloyd’s as Individual External Members, trading as an Unlimited Name, a Limited Liability Company (“Nameco”), a Limited Liability Partnership (“LLP”) or a Scottish Limited Partnership (“SLP”).

Pure Year – the Underwriting Year of Account unadjusted for any reserve adjustments arising from earlier years of account.

Qualifying Quota Share (“QQS”) – A quota share reinsurance where Lloyd’s has permitted the relevant income to be excluded for premium income monitoring purposes enabling the syndicate to write a level of premium above its agreed limits.

Quota Share Syndicate (“QSS”) – A syndicate whose purpose is to write quota share reinsurances of other Lloyd’s syndicates.

Reconstruction and Renewal – The description given to the major re-engineering of the Lloyd’s Market in the mid-1990s which, among other things, introduced Corporate Capital into the Lloyd’s Market.

Reinsurance to Close (“RITC”) – A reinsurance contract which closes an Underwriting Year of Account (normally at 36 months from its inception) by transferring the responsibility for discharging all the liabilities that attach to that Year of Account (and any Year closed into that Year) plus the right to any income due to the closing Year of Account into an open Year of Account of the same or a different syndicate in return for a premium.

Scottish Limited Partnership (“SLP”) – A partnership structure formed under Scottish law formed by an individual or a connected group of individuals which can participate as a limited liability Member.

Solvency II – The new European Union inspired accounting standards for insurance businesses that came into effect on 1st January 2016.

Special Purpose Syndicate (“SPS”) – A syndicate whose purpose is to underwrite a quota share of another syndicate and therefore does not have an existence independent of its host syndicate.

Syndicate Business Forecast (“SBF”) – The detailed business plan submitted by each syndicate annually to Lloyd’s for approval identifying the prospective account to be written and projected results.


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Tenancy in Perpetuity – See “Freehold Tenancy”.

Third Party Capital – A Member of a syndicate who is not affiliated to or owned by the Managing Agent of the syndicate (see Unaligned Capital or Unaligned Member).

Turnkey – A Managing Agent which acts as the Managing Agent for a third party syndicate based on charging the syndicate a fee for services rather than as owner of the syndicate.

Unaligned Capital or Unaligned Member – A Member of a syndicate who is not affiliated to or owned by the Managing Agent of the syndicate. Private Capital is by definition Unaligned Capital but so also would be an external insurance trade capital Member of a syndicate.

Year of Account or Underwriting Year of Account – The period from 1st January to 31st December to which insurance business underwritten is allocated for accounting purposes.

REFERENCESRef. 1 Mercer Management Consulting Inc., The Future Development of Lloyd’s and the Implications for Traditional Names, Prepared for the Market Interests Group, 5th June 1997

Ref. 2 McGovern, Sean and Thomas, Andrew, Lloyd’s – The Annual Venture: A Review, Published by Lloyd’s, October 2006

Ref. 3 Lloyd’s Market Results & Prospects 2015 –Published by the Association of Lloyd’s Members Ltd.

Ref. 4 Lloyd’s Vision 2025 – To be the Global centre for specialist Insurance and Reinsurance – Published by Lloyd’s, May 2012

APPENDICES

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THE FUTURE OF PRIVATE CAPITAL AT LLOYDS

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THE FUTURE OF PRIVATE CAPITAL AT LLOYDS

APPENDIX 1PREVIOUS REPORTS ON THE LLOYD’S MARKETPLACEThere is a history of reports on the Lloyd’s Market which have considered the future role of Private Capital. The provision of capital in the Lloyd’s Market following the Market’s ‘Reconstruction and Renewal’ in the mid-1990’s has been subject to significant change over the last two decades and, as such, the role of and opportunities to deploy Private Capital have also been subject to significant change.

THE MERCER REPORT – 1997In June 1997 the Market Interests Group, which represented the interests of the ALM and the High Premium Group, commissioned a report from Mercer Management Consulting Inc. entitled The Future Development of Lloyd’s and the Implications for Traditional Names (the “1997 Mercer Report”)

This report was set against the background of the introduction of Corporate Capital in 1994, which subsequently increased its market share. The report specifically considered “the pros and cons of the Annual Venture”. It also sought to “outline, a possible way forward for the Society and its traditional capital providers, the individual Names”.

Much of the following decade was characterised by confrontation between sections of the Managing Agency and Members’ Agency communities, set against a decline in both the volume of and opportunities open to Private Capital.

THE 2006 ANNUAL VENTURE REPORTThis report, Lloyd’s – The Annual Venture: A Review (the “2006 Annual Venture Report”) led to a number of changes, most notably the introduction of the SPS, a separate syndicate which participates via a quota share reinsurance arrangement of the host syndicate. The SPS was seen as a further route through which Private Capital could provide capacity to the Market.

The issues around the LSAA were highlighted but did not lead to any suggestions to make changes. Most aspects, including those such as the rules around

the minority buy-out process, were believed to be working effectively if operated correctly. It was felt that any issues, such as tenancy, were best left to market forces and that solutions were best developed through active negotiation between the parties.

THE 2016 PRIVATE CAPITAL REPORTA further decade on, and the introduction of SPS aside, little has changed and the number of opportunities open to Private Capital has further declined. This is the background against which this report The Future of Private Capital at Lloyd’s – A Review (the “2016 Private Capital Report”) was commissioned.

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SAPPENDIX 2 STRENGTH OF MANAGING AGENTS’ VIEWS ON SPECIFIC SUBJECTSThe Managing Agent interviews were not structured around seeking responses to specific questions. There was no formal agenda for the interviews but a prompt list was given to the interviewees ahead of the meeting. Because of this, not every topic was examined in the same level of detail at every interview and a statistical analysis of responses, in numerical terms, is not strictly achievable. However, there was a distinct coalescing of views around a number of subjects and the table below gives an indication of those subjects that were considered important and the proportion and the range of opinions that endorsed the particular view.

SUBJECT / QUESTION LEVEL AND TYPE OF RESPONSE

Each Managing Agent was asked whether they were in favour of Private Capital.

There was an overwhelming majority in favour of Private Capital and a few who were agnostic as to where their capital came from. A single Managing Agent expressed a view that Private Capital was no longer relevant.

Discussions around the Lloyd’s Standard Agency Agreement and Freehold Tenancy in Perpetuity were a feature of all Managing Agent interviews.

No Managing Agent (whether they currently have Private Capital or not) was willing to grow the Private Capital percentage share of their capital base unless it is without Freehold Tenancy in Perpetuity.

Interviewees were asked to comment on whether they would be interested in growing Private Capital as part of the capital base of their syndicates.

A significant majority of interviewees are happy to increase the proportion of Private Capital on their syndicate or, for those currently without any Private Capital, to include it as part of their capital base if Freehold Tenancy were removed.

There were several discussions around whether there might be a method of removing Freehold Tenancy in Perpetuity.

A significant majority accept that there is little that can be done to remove Tenancy in Perpetuity from those who already benefit from it. Two interviewees suggested that, if the alternative offering were attractive enough, Members might give up all or some Tenancy in Perpetuity of their own accord.

The subject of the importance of Lloyd’s-centric businesses to the long term health of the Lloyd’s Market was raised by many Managing Agents.

Almost two thirds of interviewees expressed the view that Lloyd’s-centric businesses are critical to the ongoing strength of the Lloyd’s Market and must be encouraged.

The subject of external insurance capital being favoured for new start-ups as against more Lloyd’s-centric businesses was raised by many interviewees.

There is a majority of some two thirds of interviewees who perceive that there is a two tier entry process, whereby the hurdle for Lloyd’s-centric businesses is set higher than for new external insurance capital.

The question of the retention of underwriting talent within the Lloyd’s Market was mentioned by several interviewees.

There is an almost two thirds majority in expressing concern that Lloyd’s is losing underwriting talent to the external MGA market and that this will have a significant negative impact in the longer term.


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SUBJECT / QUESTION LEVEL AND TYPE OF RESPONSE

The role of the SPS was a topic that received considerable comment from all participants.

A significant majority of Managing Agents interviewed expressed concern that the role of the SPS has evolved from its original purpose and has largely become a “soft” route for external trade capital to enter Lloyd’s.

Certain Managing Agents suggested ways by which larger participations from Private Capital could be offered.

Over half of the Managing Agents interviewed expressed a preference for Private Capital being offered in larger units where the Members’ Agent has discretion irrevocably to commit capacity.

Certain Managing Agents suggested a Private Capital syndicate able to offer capacity by way of a quota share reinsurance of existing syndicates would be an attractive concept.

More than one third of the Managing Agents interviewed state that they would welcome Private Capital support through a Lloyd’s syndicate offering them a quota share.

STRENGTH OF MANAGING AGENTS’ VIEWS ON SPECIFIC SUBJECTS


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APPENDIX 3INTERVIEW PARTICIPANTS

Andrew Kendrick ACE Underwriting Agencies Ltd

Mike Sibthorpe AmTrust at Lloyd’s Ltd

David Ibeson Apollo Syndicate Management Ltd

David Harris Argo Managing Agency Ltd

Ian Beaton Ark Syndicate Management Ltd

Stephen Cane & Julian Tighe Asta Managing Agency Ltd

Richard Harris & James Lee Atrium Underwriters Ltd

David Reeves Barbican Managing Agency Ltd

Neil Maidment Beazley Furlonge Ltd

Rolf Tolle Beazley Furlonge Ltd, Non-executive

Mark Cloutier Brit Syndicates Ltd

Michael Watson & Sally Coryn Canopius Managing Agents Ltd

Lawrence Holder Cathedral Underwriting Ltd

Bob Stuchbery Chaucer Syndicates Ltd

Duncan Dale Dale Underwriting Partners

Nigel Hanbury Helios Underwriting plc

Bronek Masojada Hiscox Syndicates Ltd

Tim Shenton Insurance Capital Partners LLP

John Nelson Lloyd’s, Chairman

Tom Bolt Lloyd’s, Underwriting Performance Director

Sean McGovern Lloyd’s, General Counsel

David Gittings & Ken Curtis Lloyd’s Market Association

Richard Trubshaw Managing Agency Partners Ltd

David Shipley Managing Agency Partners Ltd

Matthew Fosh & Reeken Patel Novae Syndicates Ltd

Robin McCoy & Dennis Purkiss R&Q Managing Agency Ltd

David Monksfield Talisman Underwriting plc

Charles Franks Tokio Marine Kiln Syndicates Ltd

Paul Jardine XL Catlin Syndicate


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APPENDIX 4CURRICULUM VITAE

IAN EDWARD CLARK FCA

2014 to date Principal of Mighty Quin Consulting Ltd.

1990 to 2014 Partner in the insurance practice of Deloitte and its predecessor firms, latterly leading the insurance strategy and Corporate Finance practices.

2010 to 2011 Advised Lloyd’s on developing its Market strategy.

2005 Advised Lloyd’s on restructuring its capital base including the Central Fund.

Appointments Chairman of The Broker Network Ltd and Non-executive director of Sabre Insurance Company Ltd and Pioneer Underwriting Ltd.

Government appointed inspector into a number of failed UK insurance companies. Government appointee on the IBRC, the former UK broking regulator.

CHRISTOPHER GILL HARMAN

2015 to date Chairman, ReSolution Underwriting Holdings Ltd.

2008 to date Partner, Jardine Lloyd Thompson Reinsurance Brokers Ltd.

2007 to 2016 Working Member of Council of Lloyd's.

2016 to date Chairman of Lloyd's Charities Trust.

1988 to 2008 Chief Executive, Harman Wicks & Swayne Holdings Ltd, the holding company of the Harman Wicks & Swayne Group, a Lloyd’s Broker until sold to Jardine Lloyd Thompson in June 2008.

Appointments Designated Partner / Director and Shareholder of various Managing General Agencies underwriting on behalf of Lloyd’s and Company markets.

Director and Shareholder of Harman Kemp North America Ltd, an independent Lloyd’s Broker.

FCA Status – Variously CF 1 Director and CF 2 Non-Executive Director

1979 to date Underwriting Member of Lloyd's on an Unlimited basis since 1979 and director of a Lloyd’s Nameco owned by wife.

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© Ian Clark & Christopher Harman. July 2016 272016

COMMISSIONED BY

The Association of Lloyd’s MembersAlpha Insurance Analysts LtdArgenta Private Capital LtdHampden Agencies Ltd

AuthorsIan Clark and Christopher Harman

Contact details of the parties who commissioned the The Future of Private Capital at Lloyd’s: A Review:–

Association of Lloyd’s Members Chandon Bleackley [email protected]

Alan Lovell [email protected]

Alpha Insurance Analysts Ltd James Sparrow [email protected]

Argenta Private Capital Ltd David Monksfield [email protected]

Hampden Agencies Ltd Neil Smith [email protected]

This Report, “ The Future of Private Capital at Lloyd’s: A Review” has been prepared by Ian Clark and Christopher Harman. With the exception of our responsibilities to the ALM and the three Members’ Agents who commissioned the 2016 Private Capital Report, we accept no responsibility or liability for any loss to any person acting or refraining from acting as the result of any statement, fact, figure, expression of opinion or belief contained in this Report.

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