Posted on 06 Jun 2013 by Neilson
In a challenge to the international company market, four Lloyd's insurers have formed a consortium to seek big-ticket global construction business.
The members of the Construction Consortium at Lloyd's all write these risks through syndicates they manage. The four are: Beazley Group, Canopius Group Ltd., Hardy Underwriting Bermuda Ltd. and Talbot Underwriting Ltd. Talbot is part of Validus Holdings Ltd.
Each member of the consortium is already capable of leading small to medium sized projects around the world, Colin Rose, head of construction and engineering at Beazley, said in an interview. We now have the brawn that is to say the underwriting capacity to lead the largest projects.
David Turner, construction global practice leader at Talbot Underwriting Ltd., offered a similar assessment. The reality is that none of the syndicates in Lloyd's have sufficient capacity in their own right to act as a lead market on a major project, Turner said in an interview. And so the influence of Lloyd's is less than we would like.
Lloyd's underwriters, Turner said, regularly find themselves unable to match terms quoted by the big global companies. Their reply now, he said, is to pool their capacity to the point where they can provide lead quotes.
The effort, Turner said, began with quiet conversations among the potential members of the consortium. It was decided to limit the participants to four to keep things from becoming unwieldy, Turner said. We wanted to find people who were of like mind from an underwriting point of view and of a similar philosophy about how the business should be underwritten, Turner said.
The probable maximum loss capacity has been set at $166 million, which Rose described as a good high number, comparable with the levels of the big companies in the market. The companies in the consortium's sights, Rose said, include such names as Zurich, Munich Re, Allianz, and Swiss Re.
Lloyd's has always had the technical expertise and the underwriting ability to lead the large projects, Rose said. But we didn't previously have the capacity in such a form that we could use it, because we're all working individually.
The announcement of the consortium was preceded by about eight months of discussions, Rose said. We've tried to make it as flexible as possible so that the brokers and clients can choose which syndicate they would like to lead the risks, Rose said.
The approach has been designed to produce two lead markets and thus avoid a time-consuming committee process, Turner said. The other two members of the consortium will come into play when the quote has been established. The business will be supported by the aggregate capacity of the four syndicates, Turner said.
Beazley has insured some major building development projects around the world and has been a leader in power generation and in mining risks, Rose said. In a statement announcing the initiative, the consortium pointed to Hardy's experience in insuring hydroelectric plants, Talbot's background with power plants, and Canopius' skill in waste water treatment.
Both Turner and Rose declined to discuss premium income goals. Rose said he sees plenty of potential business for the consortium. People talk about recession, he said, But there are still a lot of large projects being put on the table around the world.
The key regions, Turner said, are likely to be Asia, the Middle East, Latin America and North America. We don't expect to get a lot of traction in Europe, he said.
Talbot's strengths, Turner said, are in power generation and downstream energy. Values, he added, can range up to $5 billion.
The basis of the consortium, Turner said, are that it's everybody in, or the consortium falls apart. To keep the sanctity of the consortium, we agreed that there wouldn't be any cherry picking through the process.
The consortium has touted the speed of the Lloyd's market in assembling complex covers. Rose said broker deadlines will be met: If a broker needs something within 48 hours, then they'll have a quote within 48 hours.
While there have been one or two other construction consortiums in the past, Rose said, such initiatives have never had the breadth and the scope and the capacity of this one. Previous efforts, he said, have tended to concentrate on such specific areas of construction as civil engineering and on the heavier engineering risks. This is the first one that involves all types of construction and covers risks worldwide, Rose said.
The agreement is renewable annually. The strategy is to begin slowly and assess how well the members work together, Rose said. In a year's time, we'll have to look at it again, and see if there are other syndicates that wish to join, or if we think we need to increase the capacity further, Rose said.