As Lloyd's seeks a new chief executive to replace the departing Richard Ward, it may be tempted, once again, to look outside the insurance industry, according to Clive O'Connell, a partner in the London office of New York-based law firm Goldberg Segalla.Lloyd's has flourished during his tenure, O'Connell said of Ward, who came to Lloyd's after serving as CEO of the then International Petroleum Exchange in London and had a previous background in the petroleum business and in science. He has a doctorate in chemistry. Lloyd's announced Ward, in the job since April 2006, will step down at the end of the year. Ward took the post at the age of 49.
O'Connell said Ward is a prime example of the kind of careful manager that is needed to run a complex market in a rapidly changing environment. Today, proper strategic business people are being brought in, and necessarily so, O'Connell said of Lloyd's. What Lloyd's needs, O'Connell said, is somebody who's willing to really get under the skin of insurance and get to understand it.
The appointment of Ward reflected an understanding that the overly adventurous underwriting of previous years had to be controlled by sensible management, O'Connell said. To be an underwriter you have to have a fairly aggressive risk appetite, said O'Connell, an authority on the history of Lloyd's. That's not necessarily the right way to run a business.
Ward prepared Lloyd's for Solvency II in the European Union, and worked to improve processes in the market. Ward also oversaw a market beset by big catastrophes and big losses. For example, Lloyd's lost 516 million pounds (US$767 million) before taxes in 2011, a year described by Ward as the most expensive catastrophe year ever. Things improved with a 2.77 billion pound pretax profit in 2012. Vision 2025, a strategic plan released last year, outlined Lloyd's determination to boost its presence in the worlds emerging markets.
Under Ward and Rolf Tolle, the now retired franchise performance director, the Lloyd's management sought to instill discipline into the market. Tolle would seek assurances from underwriters that they would be able to mitigate any doubtful risks. Lloyd's is guided by the principle that irresponsible underwriting is a threat to the entire market. The operation of the franchise board in that period has radically overhauled the way in which Lloyd's operates and everyone's perception of it, O'Connell said.
Since the early days of Richard Wards appointment at Lloyd's, the [International Underwriting Association] has worked closely with Richard on a number of market issues in a very constructive manner, including market modernization, said Dave Matcham, chief executive of the IUA, which draws its membership from the London company market.
Richard was one of those at the helm during Lloyd's renaissance, Bronek Masojada, chief executive of Lloyd's insurer Hiscox, said in an email. He is the longest serving CEO in Lloyd's recent history, and leaves the market in excellent shape.
Under Ward, Lloyd's has also taken a high profile on climate change. In 2012, for example, Ward warned climate change in the Arctic region is creating new risks. "Risk management clearly has a critical role to play in helping businesses, governments and communities to manage these uncertainties and minimize risks," he said in a statement after the release of a report written for Lloyd's by Chatham House, the London-based think tank.
Ward, who shifted the International Petroleum Exchange from open-outcry to screen-based trading, reassured participants in the Lloyd's market that the same fate did not await them. He did this by stressing the face-to-face nature of the Lloyd's market. Unlike the IPE, Ward argued, Lloyd's is not a buy-and-sell market that can be transferred to a screen.
Lloyd's, O'Connell said, has also made progress in reducing its dependence on paper, much of which is carried in and out of the building by brokers. Insurance and reinsurance is still a business of trust, O'Connell said. And face-to-face communication is as important as ever. It doesn't necessarily mean lugging large files around. They can be now dealt with electronically.
The next CEO will serve under John Nelson, who became Lloyd's chairman in October 2011. A lot will depend on the personalities of the two individuals and the roles that they wish to take, O'Connell said.
Lloyd's declined to comment for this article, as did the Lloyd's Market Association, which represents Lloyd's managing agents.
Lloyd's and units of Hiscox have current Best's Financial Strength Ratings of A (Excellent).