September 2012 Bermuda Re/insurance
41
companies”, but indicated that as long as these are met, this was really more of an “ERM than an operational function”. He added that such questions will become more pressing as companies expand into new regional hubs, but was clear that Tokio Millennium Re’s approach will continue to emphasise local underwriting.
For Lloyd’s, a market with international pedigree and the licences to project its capabilities globally, the creation of a number of powerful regional hubs makes a lot of sense. As Harris indicated “they help to increase the optionality and value of a Lloyd’s platform and will ultimately facilitate greater access to markets— both geographically and by line of business—without significantly increasing infrastructure costs”. The regional hub approach will also enable firms to project the strengths of the London market internationally. “It’s about the ability to leverage the existing platform—the scale, the Solvency II framework, the regulatory strength and capital efficiency,” said Harris.
The hope is that regional offices will help market the Lloyd’s brand,
while directing business towards a centralised London underwriting market, he said. Dupplin indicated that he doubted that Lloyd’s’ intention was to create competing underwriting rooms in emerging geographies; rather it was to create “clear and efficient pipelines that will bring business to Lloyd’s”. Noises emanating from Lloyd’s appear to support this notion. As Sue Langley, head of market development at Lloyd’s, made clear in recent press statements: “We want to attract business into London—not away from it—through varied broker networks. Where markets demand, we will have a small number of overseas, locally focused centres, but the overall emphasis will be on bringing business through EC3.”
The success of such a hub and spoke approach will be integral to Lloyd’s ongoing significance, said Michael Graham of insurance software specialists, Sequel. “Markets depend on concentration, and Lloyd’s is no different,” he said. Dupplin concurred, indicating that “it is very difficult to run businesses where you are accepting complex global risks in various locations—it’s much simpler to have all your complex and big risks underwritten in a small number of places, such as London and Bermuda, because you can ensure the quality is maintained and that appropriate management systems are in place so that you aren’t going to get into difficulty”. He added that unpleasant lessons had been learnt about the quality of local underwriting following the Thai floods, highlighting the danger of underwriting globally. “Lloyd’s has been immensely successful by concentrating underwriting in one place,” said Dupplin, warning that any dilution of this capability by locating underwriting rooms around the world would not play to the market’s strengths.
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