coverholders market access study international markets market intelligence april 2010 for managing...

CoverholdersMarket Access Study

International Markets

Market Intelligence

April 2010

FOR MANAGING AGENTS AND BROKERSDisclaimerDisclaimer

© Lloyd’sCoverholders - Market Access Study2

LLOYD’S EUROPEAN DISTRIBUTIONCONTENT ABOUT THIS STUDY LLOYD’S CAPABILITY ANALYSIS LLOYD’S STRENGHTSAPPENDIX

Con

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tCLICK ANY BOX FOR

NAVIGATION

Explains the OBJECTIVES of this study

Summarises the METHODOLOGY of this study

Lists the DATA LIMITATIONS of this study

Explains the MATRIX used to asses Lloyd’s strengths by risk group

MATRIX RESULTS by:

COUNTRY CATEGORY

DISTRIBUTION CHANNEL

TARGET CLASSES as identified by Lloyd’s Capability Analysis for Coverholder business in New Markets.

Basic overview of the above TARGET CLASSES

LLOYD’S DISTRIBUTION CHANNELS used in Europe by proportion of premiums (Reinsurance, Direct & Coverholders)

Segmentation into COUNTRY CATEGORIES for Europe from a Lloyd’s perspective by premiums

(Established, New & Non-Established)

ABOUT THIS STUDYABOUT THIS STUDY APPENDIXAPPENDIX

LLOYD’S CAPABILITY ANALYSISLLOYD’S CAPABILITY ANALYSISLLOYD’S EUROPEAN DISTRIBUTIONLLOYD’S EUROPEAN DISTRIBUTION

LLOYD’S STRENGTHSLLOYD’S STRENGTHS

KEY MESSAGES


Key Messages > Summary

MESSAGE # 1: At different stages of development, markets have different characteristics.


MESSAGE # 2: This study has helped to identify target business classes exhibiting high growth / high volume business for Lloyd’s in Europe:

by country category (Established, New & Non-Established); and

by distribution channel (Reinsurance, Direct & Coverholders).

MESSAGE # 3: This study has used Poland as a case study to look at classes of business which are exhibiting high growth / high volume business for Lloyd’s for Coverholder business. Those target classes have been analysed in greater detail which is shared with Managing Agents via:

Managing Agent Download: www.lloyds.com/regionalwatch > Managing Agent Version > Poland

Questions on Coverholders: www.lloyds.com/coverholders

Lloyd’s European Distribution

1

> Lloyd’s Overview> Country Categories

> Established Markets

> New Markets> Non-Established Markets

> Summary



2008

European Distribution > Lloyd’s Overview

INDEXED ANNUAL GROSS WRITTEN PREMIUMS

80

90

100

110

120

130

140

2002 2003 2004 2005 2006 2007

Direct

Reinsurance

Grand Total

Coverholders

Index 2002 = 100

SOURCE: Xchanging, “REG 258”, (2009); please note data limitations as described in Appendix; 2008 spike largely due to exchange rate movements vis-a-vis GBP

EUROPE



European Distribution > Country Categories

CATEGORISATION

For the purpose of the further analysis, countries in Europe (excluding UK) are grouped in three categories according to:

Lloyd’s revenues generated per country,

License type,

Length of Lloyd’s Office establishment.

FranceItalyGermanyNetherlandsSwitzerlandIrelandGreeceDenmarkBelgiumChannel IslandsCyprusGibraltarMalta

ESTABLISHED

NorwaySpainSwedenAustriaPortugalPoland

NEW

SOURCE: Xchanging, “REG 258”, (2009); please note data limitations as described in Appendix; Countries generating < GBP 10m in annual GWP were ignored in this study

RussiaTurkeyLuxembourgFinlandAzerbaijanRomania

NON-ESTABLISHED





Direct

Reinsurance

Grand Total

Coverholders

Index 2002 = 100


ESTABLISHED

2002 2003 2004 2005 2006 2007

90

100

110

120

130

140





Direct

Reinsurance

Grand Total

Coverholders

Index 2002 = 100


2002 2003 2004 2005 2006 2007

NEW

80

100

120

140

160

180

200

220

240





Direct

Reinsurance

Grand Total

Coverholders

Index 2002 = 100


2002 2003 2004 2005 2006 2007

NON-ESTABLISHED

60

80

100

120

140

160

180



European Distribution > Summary

GROSS WRITTEN PREMIUMS SPLIT (2008)

Direct

Reinsurance

Grand Total

Coverholders

SOURCE: Xchanging, “REG 258”, (2009); please note data limitations as described in Appendix

0%

25%

50%

75%

100%

EUROPE ESTABLISHED NEW NON-ESTABLISHED POLAND


Lloyd’s Capability Analysis

2

> The Model> Reinsurance

> Direct

> Coverholders

ESTABLISHED NEW NON-ESTABLISHED





Lloyd's Capability Analysis > The Model

MODEL SUMMARY


X axis – Growth rank: Business classes are ranked according to their Compound Annual Growth Rate (CAGR) calculated for the 2002 – 2008 period. Business class with the rank 1 had the highest growth rate, whereas business classes with the rank 25 or above had the lowest or negative growth rate during the period.

Y axis – Size rank: Business classes are ranked according to 2008 revenues. Business class with the rank 1 was the largest in 2008 in terms gross written premiums, whereas business classes with the rank 25 or above were the smallest in the same year.

Pre-defined Criteria of Matrix

Terrorism

Energy Offshore

Engineering

Financial Guarantee

Marine Liability

Fine Art

Airline/ general aviation (liabs)

Livestock & Bloodstock

Jewellers

Cargo

Medical Expenses

Accident & Health (direct)

Property (direct & facultative)

Airline/ general aviation (hull)

Space

Contingency/ other pecuniary

NM general liability (direct)

Professional Indemnity

War

Medical malpractice

Marine Hull

Directors & Officers

Overseas motor

Financial Institutions

Political Risks/ contract frustration

1

5

9

13

17

21

25

15913172125 GROWTH RANK

SIZE RANKBusiness classes that generate high revenues for Lloyd’s. Due to historically high growth rate these business classes also have the highest potential for the future revenue development.

HIGH GROWTH / HIGH VOLUME

1

High volume business classes that have been growing at a slower pace or have been contracting. However, these are important classes as they still provide high revenue streams for Lloyd’s.

Low GROWTH / high VOLUME

2

Business development opportunities within the sector have to be evaluated with great care, as some low volume classes, carrying extreme growth rates, grew from nil revenue level during last 6 years, and therefore might not reflect the future growth potential.

High GROWTH / low VOLUME

3

Lloyd’s business classes that generate small revenues now and have low growth potential in the future. The sector has the lowest new business development potential.

Low GROWTH / low VOLUME

4

12

34



Lloyd's Capability Analysis > The Matrix


GROWTH RANK

SIZE RANK

Medical Expenses


Property cat XL

UK motor

Employers liability

Terrorism

NM general liability

Overseas motor

Term life

Legal expenses

Property

NM casualty treaty

Fine Art

Marine XL

Energy Onshore


Cargo

Marine Hull

Accident & Health

Energy Offshore

Personal accident XL

Aviation products/ airport liabilities


Nuclear



Jewellers

Aviation XL

Property risk XS

Property pro rata

Marine Liability


Engineering

War

Space

Specie


Financial Guarantee

Medical malpractice

1

7

13

19

25

31

37

171319253137

Target Business Classes for this Segment

ESTABLISHED REINSURANCE KEY MESSAGES

PropertyMarine HullTerrorismNon-Marine Casualty Treaty

Marine XLAccident & HealthEnergy OnshoreCargo

Fine ArtAviation Products / Airport LiabilitiesEnergy OffshoreNon-Marine General Liability


“For Established Markets, Property, Marine Hull, Terrorism as well as Non-Marine Casualty Treaty tend to be the classes of business with high growth / high volume business for Lloyd’s via the Reinsurance channel.”

SEE, Categorisation for definition of Established Markets




GROWTH RANK

SIZE RANKNEW REINSURANCE

Property pro rata

Space


Engineering


Employers liability

Terrorism

NM casualty treaty

Fine Art

Property

Financial Guarantee

Energy Offshore




Cargo

Marine XL


Marine Hull

Property risk XS

Property cat XL

Accident & Health

Marine Liability


Energy Onshore

Specie



War


Aviation XL

Term life

Jewellers

Medical malpractice


Medical Expenses

Overseas motor

1

7

13

19

25

31

37

1713192531

Target Business Classes for this SegmentPropertyEnergy OffshoreEngineeringMarine XL

Marine HullTerrorismCargoContingency / Other Pecuniary

Aviation Products / Airport LiabilitiesNon-Marine Casualty TreatyFine ArtNon-Marine General Liability


KEY MESSAGES

“For New Markets, Property, Energy Offshore, Engineering as well as Marine XL tend to be the classes of business with high growth / high volume business for Lloyd’s via the Reinsurance channel.”

SEE, Categorisation for definition of New Markets




GROWTH RANK

SIZE RANKNON-ESTABLISHED REINSURANCE


Engineering


Employers liability


Terrorism

Aviation XL

NM casualty treaty




Medical malpractice


Space

Energy Onshore

Jewellers

Fine Art

Marine Liability


Marine XL

Term life

Specie

Property pro rata


Property

Energy Offshore


Marine Hull

Accident & HealthCargo

Property risk XS

Financial Guarantee


Property cat XL

Overseas motor

War

1

7

13

19

25

31

37

1713192531

Target Business Classes for this SegmentTerrorismEnergy OnshoreAccident & HealthAirline / General Aviation (Hull)

Aviation XLSpaceNon-Marine General LiabilityMarine Liability

Marine XLFinancial InstitutionsPropertyEnergy Offshore


KEY MESSAGES

“For Non-Established Markets, Terrorism, Energy Onshore, Accident & Health as well as Airline / General Aviation (Hull) tend to be the classes of business with high growth / high volume business for Lloyd’s via the Reinsurance channel.”

SEE, Categorisation for definition of Non-Established Markets




GROWTH RANK

SIZE RANKDIRECTESTABLISHED

Energy Onshore

Legal expenses

Energy Offshore

Jewellers

Cargo

Medical Expenses

Financial InstitutionsEmployers liability

Financial Guarantee

Engineering

Medical malpractice


Fine Art

Marine Hull

Marine Liability


UK motor




Accident & Health

Property


Term life

Overseas motor


Contingency/ other pecuniarySpecie

Space

War

Terrorism


Extended warranty

1

5

9

13

17

21

25

29

33

1591317212529

Target Business Classes for this SegmentMarine HullEnergy OffshoreTerrorismProfessional Indemnity

Financial GuaranteeCargoMedical malpracticeMarine Liability

Accident & HealthAviation Products / Airport LiabilitiesNon-Marine General LiabilityJewellers


KEY MESSAGES

“For Established Markets, Marine Hull, Energy Offshore, Terrorism as well as Professional Indemnity tend to be the classes of business with high growth / high volume business for Lloyd’s via the direct channel.”





GROWTH RANK

SIZE RANKDIRECTNEW

Energy Offshore

Energy Onshore

Marine Liability

Overseas motor

War

Accident & Health



Cargo

Contingency/ other pecuniaryDirectors & Officers

Employers liability

Engineering

Financial Guarantee


Fine Art

Jewellers


Marine Hull

Medical Expenses




Property

Space

Specie

Term life

Terrorism


1

5

9

13

17

21

25

29

1591317212529

Target Business Classes for this SegmentEnergy OffshoreMarine HullMarine LiabilityPolitical Risks

Accident & HealthTerrorismCargoNon-Marine General Liability

Financial GuaranteeSpecieFinancial InstitutionsProfessional Indemnity


KEY MESSAGES

“For New Markets, Energy Offshore, Marine Hull, Marine Liability as well as Political Risks tend to be the classes of business with high growth / high volume business for Lloyd’s via the direct channel.”





GROWTH RANK

SIZE RANKDIRECTNON-ESTABLISHED

Energy Onshore


Space

Specie

Accident & Health



Cargo



Energy Offshore

Engineering

Financial Guarantee


Fine Art

Jewellers


Marine Hull

Marine Liability



Property

Term life

TerrorismWar


1

6

11

16

21

26

16111621

Target Business Classes for this SegmentTerrorismMarine HullEnergy OffshoreAirline / General Aviation (Hull)

Professional IndemnityAccident & HealthFinancial InstitutionsDirectors & Officers

EngineeringMarine LiabilityJewellersNon-Marine General Liability


KEY MESSAGES

“For Non-Established Markets, Terrorism, Marine Hull, Energy Offshore well as Airline / General Aviation (Hull) tend to be the classes of business with high growth / high volume business for Lloyd’s via the direct channel.”





GROWTH RANK

SIZE RANKCOVERHOLDERESTABLISHED

Energy Onshore

Property cat XL

Energy Offshore

Terrorism


Term life


Space



Cargo

Financial Guarantee

Fine Art

Specie





Marine Liability


Jewellers

Marine Hull

War

Overseas motorMedical malpractice

UK motor


Engineering

Legal expensesProperty pro rata


Medical Expenses

Employers liability


1

4

7

10

13

16

19

22

25

28

31

34

147101316192225283134

Target Business Classes for this SegmentCargoFine ArtProfessional IndemnityTerm life

Accident & HealthPropertyLivestock & Bloodstock Airline / General Aviation (Hull)

TerrorismDirectors & OfficersMarine HullJewellers


KEY MESSAGES

“For Established Markets, Cargo, Fine Art, Professional Indemnity as well as Term Life tend to be the classes of business with high growth / high volume business for Lloyd’s via the Coverholder channel.”





GROWTH RANK

SIZE RANKNEW COVERHOLDER

Energy Onshore

Energy Offshore


Financial Guarantee

Terrorism

Engineering

Medical Expenses



Cargo




Marine Hull

Fine Art


Marine Liability


Jewellers


War

Overseas motor

Medical malpractice

Space



Employers liability

Term life

Legal expenses

1

5

9

13

17

21

25

29

1591317212529

Target Business Classes for this SegmentCargoMarine HullPropertyProfessional Indemnity

Non-Marine General LiabilityFine ArtMedical ExpensesContingency / Other Pecuniary

JewellersLivestock & BloodstockAccident & HealthMarine Liability


KEY MESSAGES

“For New Markets, Cargo, Marine Hull, Professional Indemnity tend to be the classes of business with high growth / high volume business for Lloyd’s via the Coverholder channel.”





GROWTH RANK

SIZE RANKNON-ESTABLISHED COVERHOLDER

Terrorism

Energy Offshore

Engineering

Financial Guarantee

Marine Liability

Fine Art



Jewellers

Cargo

Medical Expenses




Space




War

Medical malpractice

Marine Hull


Overseas motor



1

5

9

13

17

21

25

15913172125

Target Business Classes for this SegmentMarine LiabilityAccident & HealthPropertyTerrorism

Fine ArtSpaceCargoJewellers


KEY MESSAGES

“For Non-Established Markets, Marine Liability, Accident & Health, Property well as Terrorism tend to be the classes of business with high growth / high volume business for Lloyd’s via the Coverholder channel.”


Lloyd’s Strengths

3

> Qualitative Analysis> Qualitative Outcomes> Quantitative Outcomes

> Coverholder Profile: Property – Home & Commercial> Coverholder Profile: Liability – Professional Indemnity> Coverholder Profile: PA & Health – Accident> Coverholder Profile: MAT- Cargo> Coverholder Profile: MAT – Marine Hull> Coverholder Profile: Property – Fine Art



Lloyd’s Strengths > Qualitative Analysis

QUALITATIVE ANALYSIS: BASED ON: LONDON INTERVIEWS

Accident & Health (direct) Marine XLAirline/ general aviation (hull) Medical ExpensesAirline/ general aviation (liabs) Medical malpracticeAviation products/ airport liabilities NM casualty treatyAviation XL NM general liability (direct)Cargo NuclearContingency/ other pecuniary Overseas motorDirectors & Officers Personal accident XLEmployers liability Political Risks/ contract frustrationEnergy Offshore Professional IndemnityEnergy Onshore Property (direct & facultative)Engineering Property cat XLExtended warranty Property pro rataFinancial Guarantee Property risk XSFinancial Institutions SpaceFine Art SpecieJewellers Term lifeLegal expenses TerrorismLivestock & Bloodstock UK motorMarine Hull WarMarine Liability

Non-life business classesTo help maximise Lloyd’s business opportunities in Lloyd’s “NEW “ Markets, this study sought to understand what makes Lloyd’s an attractive proposition for local market players.

A series of interviews were conducted with underwriters and Lloyd’s staff in London to explore: What is Lloyd’s competitive advantage? Who is Lloyd’s target customer? Who is Lloyd’s competing against in their target segments?

A more detailed look at business classes was essential in assessing Lloyd’s competitive position. Lloyd’s generates profitable revenues from Marine Liability business in country X. Is this because of the offered cover, rates, distribution channels, underwriting expertise, or due to any other factors?



Lloyd’s Strengths > Qualitative Outcomes

QUALITATIVE OUTCOMES: LONDON INTERVIEWS

QUESTION: What makes a local company a suitable partner for coverholder business?

LOCAL KNOWLEDGE – Underlying product knowledge (i.e. yachts, fine art), insurance market knowledge and relationships with the end customers. Ideally, a potential coverholder has a solid track record in the market and already manages a portfolio of local business.

INSURANCE KNOWLEDGE – Understanding of insurance concepts, as well as the book of business that the potential coverholders handle, including a good understanding of premiums and loss ratio that they produce for a local insurer.

BUSINESS PLAN – Persuasive and robust business case, covering distribution, underwriting, financial and managerial aspects.

FINANCIAL STABILITY – Reputable shareholders and sound financial performance.

LLOYD’S FAMILIARITY – Understanding of the Lloyd’s model and unique Lloyd’s profitability requirements.

GOOD REPUTATION – Integrity and professionalism.

TECHNICAL ABILITY – Discipline and capacity to service local clients, handle insurance contracts and claims, collection and process premiums.

ENGLISH LANGUAGE SKILLS

In many cases coverholders are small local brokers with good regional business connections. Retail brokers very often do not understand or are aware of the coverholder concept due to their commission focus, leading to conflict of interests and adverse selection. All the above is unimportant if the coverholder does not have the technology to speedily issue documents and to report data electronically to London, so that the underwriters can be aware of the status of the account on a real time basis.

Other Comments



Lloyd’s Strengths > Quantitative Outcome

QUANTITATIVE ANALYSIS: BASED ON LLOYD’S CAPABILITY STUDY

Access to Case Study on Primary Growth Classes

Managing Agents have access to the Polish case study on primary growth classes on:> www.lloyds.com/regionalwatch > Managing Agent Version > Poland

PRIMARY GROWTH CLASSES

Cargo


Accident & Health

Fine Art

Marine Hull

Property

SECONDARY GROWTH CLASSES

Overseas Motor


Jewellers

Medical Malpractice


Further business classes where Lloyd’s was successful in building its market position in coverholder business in Europe were:


http://www.lloyds.com/regionalwatch


Lloyd’s Strengths > Property Home & Commercial (1 of 2)

SOURCE: Soft intelligence based on London Interviews, (November / December 2009); Europe as defined in categorisation at Country Categories

CO

VE

RH

OL

DE

R P

RO

FIL

E

Sub-Class

HOME & COMMERCIAL

Premiums / Capacity

Scope of Cover / Exclusions

Profitability / Claims

Other remarks

Average size coverholder generates GBP 800k – GBP 1m annual gross written premiums.

Capacity is usually limited to GBP 4 – GBP 8m for any one coverholder.

Coverholders, irrespective of the territories, are usually required to produce a minimum 70% - 80% loss ratio on a net premium basis.

Claims handling authority depends on the coverholder’s experience, and varies dramatically. Most profitable coverholders produce annual revenues above GBP 10m with only GBP 150 average premium per policy. Higher volumes and lower values generally produce better results.

Lloyd’s coverholders compete with the market by offering optional extras to the cover, i.e. loss of profits / rent, flexibility in stock valuation, etc. Local insurers however can offer similar cover, so coverholders’ ability to compete by offering a wider cover is limited. When compared to the local market, Lloyd’s coverholders have a lot more sophisticated product for homeowners insurance. Local insurers would offer straightforward Property insurance, whereas Lloyd’s coverholder includes other risks (i.e. personal liability) to make cover more comprehensive.

The coverholder business model may be challenged via diverging interpretations and implementation of regulations.

There appears to be growing emphasis on transparency on intermediary compensation.

Lloyd’s European Premium ProfileProperty

Lloyd’s European Top Markets

(by 2008 GWP)

2008A

GBP 118.82m

A: Actual Total Premium in European Countries*

CAGR 2002 - 2008

10.05%

1. France 2. Ireland 3. Germany

A: Based on Total Premium in European Countries* during 2008



Lloyd’s Strengths > Property Home & Commercial (2 of 2)


Sub-Class

Customers Distribution

Competition

Coverholders usually specialise in specific customer market segments, i.e. homeowners, holiday houses, SMEs, distressed properties such as nightclubs, and expatriate households.

Lloyd’s coverholders are usually multiline, i.e. other insurance products are also sold to the same customers.

The strength of the Lloyd’s brand is an important factor for many local customers.

The combination of a coverholder-branded product with the strength of the Lloyd’s brand is often a strong value proposition to local customers.

Distribution channels vary from country to country.

The competition is mostly price driven, however coverholders win business by having closer relationship with the insurance buyers as well as by offering superior service.

Service levels local companies – particularly in more immature markets – tend to be poor.


Customer Needs

(2009 Questionnaire)

2008A


CAGR 2002 - 2008

10.05%

Specialist UW knowledgeUW Service and DecisionsPrice CompetitivenessClaims Service

Based on prompted questionnaire, (November 2009)

HOME & COMMERCIAL

GBP 118.82m

CO

VE

RH

OL

DE

R P

RO

FIL

E



Lloyd’s Strengths > Liability Professional Indemnity (1 of 2)


Sub-Class

PROFESSIONAL INDEMNITY (PI)

Premiums / Capacity



Other remarks

Average size coverholder generates between GBP 400k – GBP 800k annual gross written premiums. Larger coverholders produce GBP 2.5 – GBP 4m annual income. Average premium per insured ranges from GBP 1k to GBP 5k.

Maximum capacity given to a coverholder would not exceed GBP 5m, although higher risks could be placed on a facultative basis into the Lloyd’s Market.

The loss ratio ranges from 0% to 120% on a net premium basis, with 40% - 60% being a rough average.

Coverholders are usually required to produce a maximum 70% loss ratio on a net premium basis. Total commissions can reach 30%.

Very few coverholders have local claims handling authority. In very rare cases, the coverholder is allowed to handle claims up to GBP 10k.

Lloyd’s coverholders usually offer the broadest and most tailored cover. PI is one of the few insurance classes that has not been commoditised even in the developed markets. Lloyd’s offers only claims made basis cover, therefore in Germany, Austria and CEE it remains difficult to compete in compulsory PI classes requiring acts committed cover. Coverholders have bigger competitive advantage in terms of offered cover in CEE where PI is an adjusted version of general liability cover.

When delegating underwriting authority, managing agents would agree underwriting guidelines, rating schedules, and covered classes with a local coverholder.

Lloyd’s European Premium Profile


(by 2008 GWP)

2008A

GBP 80.47m


CAGR 2002 - 2008

10.69%

1. Italy 2. France 3. Spain


Liability

CO

VE

RH

OL

DE

R P

RO

FIL

E



Lloyd’s Strengths > Liability Professional Indemnity (2 of 2)


Sub-Class


Competition

Many coverholders are built on the relationship with local professional associations. Customers are usually local SMEs.Coverholders specialise in the specific professional lines within a broader PI sector. Professional lines with higher revenue streams differ from country to country as follows: In Italy most business comes from accountants, lawyers, architects, and engineers; France: architects, engineers, and insurance intermediaries; Spain: construction related PI, and insurance intermediaries.

Management consultancies is a new developing professional occupancy with a high PI insurance demand.

Lloyd’s brand is a strong sales argument for many PI customers, as it is very often related to a recognised status perception.

Lloyd’s brand is especially strong among Italian insurance intermediaries and buyers of insurance.

Distribution of business varies from country to country.

Agents offer a stronger sales channel in some countries, whereas brokers dominate in others.

Price is the most important competition driver, however the second most important factor is service. Lloyd’s coverholder can outperform local insurers with their superior service provision as well as embedded relationships with the associations. Some local insurers still underestimate the importance of service provision, and offer their services on a “one size fits all” basis. Lloyd’s has a competitive advantage in terms of its bespoke product in less mature markets. Product innovations, however, are very quickly picked up and copied by the local competition.


Customer Needs


2008A


CAGR 2002 - 2008

10.69%



Liability GBP 80.47m

PROFESSIONAL INDEMNITY (PI)

CO

VE

RH

OL

DE

R P

RO

FIL

E



Lloyd’s Strengths > PA & Health Accident (1 of 2)


Sub-Class

ACCIDENT

Premiums / Capacity



Other remarks

The size of a coverholder ranges from GBP 100k to GBP 5m gross annual written premiums. The average coverholder generates GBP 800k annual gross written premiums, however underwriters would look at minimum GBP 100k per coverholder. Maximum line per coverholder for “any one event” (AOE) is GBP 20 – GBP 30m, maximum line for “any one person” (AOP) is GBP 7m. Average AOE limit is GBP 5 – GBP 10m, and GBP 1.5m for AOP. Average sum insured AOP is GBP 500k. Usually a special acceptance is required for risks exceeding 50% of the capacity.

Coverholder results are very volatile, however on average A&H coverholders are profitable and produce 50% - 60% loss ratio on a net premium basis.

Average total commissions reach 30% - 35% of gross written premiums. In some cases coverholders can negotiate flexible commission from risk carriers.

Lloyd’s tends to offer the widest and most flexible cover in the market.

Local insurers rarely cover War risk, Nuclear Chemical Biotechnology risk, war zones, and “Failure to Survive” among other higher exposure risks.

Lloyd’s coverholders have a competitive edge due to their capacity. Local insurers can hardly match Lloyd’s by offering GBP 20m for “any one event” cover for large corporate clients.

Lloyd’s coverholders also offer higher AOP sum insured reaching up to 10 times the salary of the insured (5 times the salary for sportsmen and for the policyholders in the war territories).



(by 2008 GWP)

2008A

GBP 52.29m


CAGR 2002 - 2008

9.31%

1. Netherlands 2. Italy 3. France


PA & Health

CO

VE

RH

OL

DE

R P

RO

FIL

E



Lloyd’s Strengths > PA & Health Accident (2 of 2)


Sub-Class


Competition

Lloyd’s coverholders usually cover distressed PA business, or risks requiring higher limit cover that is difficult to place in local markets.

Main customer segments are sportsmen, actors, keymen – top executives, policyholders exposed to the war territories (security guards, news corporations, demining and reconstruction workers), airlines crews, and corporate clients with a high “any one event” exposure.

Distressed PA business is shared 50/50 by brokers and direct distribution channels.

Most of the coverholders specialise in the specific customer market segments: i.e. sportsmen, corporate clients, or high net worth individuals.


Customer Needs


2008A


CAGR 2002 - 2008

9.31%

Specialist UW knowledgeUW Service and Decisions


ACCIDENT

PA & Health GBP 52.29m

Flexibility, breadth cover, brand, security, and line size offered differentiates Lloyd’s coverholders from the competition.

In many cases Lloyd’s coverholders can also offer better service than local insurance providers.

CO

VE

RH

OL

DE

R P

RO

FIL

E



Lloyd’s Strengths > MAT Cargo (1 of 2)


Sub-Class

CARGO

Premiums / Capacity



Other remarks

Coverholders generate from GBP 60k to GBP 600k annual gross written premiums, however in many cases the same coverholder would also write other lines of business.Average premium for any one insured is GBP 300 – GBP 600.GBP 6m is usually a maximum capacity given to a coverholder, however in developing markets this is usually limited to GBP 3m. Risks above GBP 600k would need special approval from Lloyd’s underwriters. Average sum insured of any one risk is also around GBP 600k.

Loss ratio per coverholder varies from 60% – 80% on a net premium basis.

Some coverholders do not have any authority to handle claims locally, whereas more experienced coverholders handle claims up to GBP 15k.

Usually Lloyd’s coverholders have to find a competitive edge in terms of scope of cover due to a higher commission structure. This could include: Terrorism cover, broader cover for the liability section, product recall, contingency risks, cover for perishable goods etc. Lloyd’s coverholders try to be innovative and provide the cover with no predetermined set of conditions. However, since most local insurers use the same Institute Clauses, Lloyd’s coverholders rarely have a competitive advantage in terms of wider cover proposition.

Lloyd’s has a very strong brand name in the Cargo insurance market.

It is one of the competitive advantages for local Lloyd’s coverholders, relating to Lloyd’s expertise, financial security, innovation of products, service, and claims handling.

Lloyd’s European Premium ProfileMAT


(by 2008 GWP)

2008A

GBP 37.70m


CAGR 2002 - 2008

21.52%

1. Belgium 2. France 3. Ireland


CO

VE

RH

OL

DE

R P

RO

FIL

E



Lloyd’s Strengths > MAT Cargo (2 of 2)


Sub-Class

CARGO


Competition

Customers are usually small-medium local enterprises.

Coverholders would usually cross sell other insurance products to their customers.

Cargo distribution channels vary, however it is mostly a broker dominated market

The expertise of local Insurers varies depending on the area.

Strong domestic carriers are usually a big threat for coverholder business development.

However, it may be beneficial for the coverholder if the local carrier is not providing a good service.

Price remains the main competition driver, but quality of security, breadth of cover, and service are still important factors.


Customer Needs


Specialist UW knowledgeSecurity / Financial Strength UW Service and DecisionsPrice CompetitivenessClaims ServiceBased on prompted questionnaire, (November 2009)

2008A

GBP 37.70m


CAGR 2002 - 2008

21.52%

CO

VE

RH

OL

DE

R P

RO

FIL

E



Lloyd’s Strengths > MAT Marine Hull (Yachts) (1 of 2)


Sub-Class

MARINE HULL (YACHTS)

Premiums / Capacity



Other remarks

More than 75% of Marine Hull business underwritten via coverholders is yachts insurance. The smallest yacht coverholders produce GBP 500k – GBP 600k annual gross revenues. As the coverholder develops annual premiums grow up to GBP 1.2m on average. Average premium per insured yacht is GBP 600 – GBP 1k. Average sum insured for any one yacht is GBP 150k, whereas maximum limits per coverholder usually are set at GBP 500k – GBP 600k.

Coverholder results are very volatile, however on a five year horizon, underwriters would expect a maximum 75% loss ratio on a net premium basis. On average yachts coverholders produce between 55% - 70% loss ratio on a net premium basis.

Commission usually comprise 20% – 22.5% to a coverholder and 7.5% to a wholesale broker. Coverholders are allowed to handle claims locally of up to USD 10k for any one claim.

Lloyd’s coverholders tend to offer the broadest cover in the market.

The market however is becoming increasingly commoditised as local insurers very quickly match Lloyd’s coverholder terms. The risks are mainly underwritten on named perils Institute Clauses.

However in some cases all risk American yacht forms R12 are used.

When delegating authority, underwriters agree rating schedule, limits, that depend on the type, mileage, and location of the craft among other factors.

Lloyd’s has a competitive advantage in offering higher commission to local intermediaries. Local insurers usually cannot offer more than 12.5% commission, whereas Lloyd’s coverholders can go as high as 17.5% on the gross written premium basis.



(by 2008 GWP)

2008A

GBP 34.13m


CAGR 2002 - 2008

10.02%

1. Sweden 2. Norway 3. Italy


CO

VE

RH

OL

DE

R P

RO

FIL

E



Lloyd’s Strengths > MAT Marine Hull (Yachts) (2 of 2)


Sub-Class

MARINE HULL (YACHTS)


Competition

Business development strategies differ across coverholders.

While some focus on relationships with Yacht associations, others advertise their insurance to the general public as a retail product.

Price is a more important factor for lower value yachts (below GBP 500k), whereas security becomes an important aspect for the more expensive yacht owners.

Aside price, prestige associated with Lloyd’s brand is an important sales argument both for local coverholders and for the end customers.

Yachts insurance is distributed by both brokers and agents. The level of coverholder business understanding is comparatively high among insurance intermediaries.

Yachts managing companies is an important insurance distribution channel in some countries. Yachts managing companies in some countries also act as coverholders.

Price is the main driving factor behind the competition, which has intensified more recently.

Axa and Generali are very competitive in price and in the offered cover. However, Lloyd’s coverholders are also competitive, and in many cases outperform the competition.


Customer Needs


2008A


CAGR 2002 - 2008

10.02%



GBP 34.13m

CO

VE

RH

OL

DE

R P

RO

FIL

E



Lloyd’s Strengths > Property Fine Art (1 of 2)

Sub-Class

FINE ART

Premiums / Capacity



Other remarks

Average size coverholder generates GBP 600k – 800k annual gross written premiums.Premium per insured varies from GBP 500 to GBP 50k with an average premium of around GBP 5k.

Capacity rarely exceeds GBP 30m of any one coverholder, where GBP 15m is estimated to be an average.Sum insured of any one risk varies dramatically with GBP 600k being a rough average.

Loss ratio per coverholder varies from: 40% – 60% on a net premium basis.

Commissions to coverholders can reach up to 35% of gross written premiums.

Some claims handling is delegated to the local coverholder, however claims exceeding GBP 25k are handled at Lloyd’s.

Local insurers historically offered peril basis cover only. This gave a competitive advantage to Lloyd’s, offering cover on an all risks basis. The situation has changed as local insurers have caught up and are increasingly offering all risks cover.

Generally, in more immature markets, Lloyd’s can still offer a wider cover, i.e. no transit limit, broader coverage, higher limit, lower deductibles etc.

Empowerment, control, and ownership are the main arguments for selling the coverholder concept to potential coverholders.



(by 2008 GWP)

2008A

GBP 31.6m


CAGR 2002 - 200815.7%

1. Italy 2. France 3. Netherlands



CO

VE

RH

OL

DE

R P

RO

FIL

E



Lloyd’s Strengths > Property Fine Art (2 of 2)


Sub-Class

FINE ART


Competition

Customers include private collectors, dealers, auction houses, and museums / galleries.

Private collectors and small galleries are the most common customer segments.

The coverholder would usually also target a specific customer group.

Fine Art is mostly a direct insurance market (especially in the private customer market segment).

In some countries policies are distributed via the internet. Some coverholders therefore also maintain internet platforms for distribution of their policies.

Brokers are usually involved with the larger commercial clients such as galleries or auction houses.

Local insurers in the mature markets have strong expertise in the business. Competitors, such as AXA Direct, offer all risks cover which is not dissimilar from Lloyd’s cover. In more mature markets price is becoming the most important competition driver.

Service and security still remain important differentiating factors. Coverholders usually can offer better service to a local client, therefore it is an important proposition when competing with local insurers.


Customer Needs


Specialist UW knowledgeSecurity / Financial Strength UW Service and DecisionsPrice CompetitivenessClaims Service


2008A

GBP 31.6m


CAGR 2002 - 200815.7%

CO

VE

RH

OL

DE

R P

RO

FIL

E


4About this Study > Objectives

> Output> Methodology



About This Study > Objectives

OBJECTIVES

The aim of the Market Access Study was to help maximise opportunities for Lloyd’s business in markets where Lloyd’s is not well established.

While the Lloyd’s brand is well known and respected in the majority of developing markets, awareness not always transforms into business opportunities.

The underlying methodology and research approach of this study has been developed through a case study on coverholder opportunities in Poland.



About This Study > Output

OUTPUT

The study revealed six high growth business classes generating the largest revenues for Lloyd’s from coverholder business for the category of “new markets”.

More in depth analysis was conducted on those business classes from a coverholder perspective in Poland.

This summary of this analysis has been shared with Managing Agents via Regional Watch - Poland.

> Managing Agents have access to Regional Watch – Poland at:> www.lloyds.com/regionalwatch > Poland


http://www.lloyds.com/regionalwatch


About This Study > Methodology

METHODOLOGY

Understanding Lloyd’s marketIn order to fulfil the objectives of the project, the central stage of the project has covered an understanding of Lloyd’s, its strengths, capabilities, unique value proposition, needs of managing agents and brokers, as well as coverholder business strategies.

Polish market studyIn order to understand characteristics of an “emerging market” in the Lloyd’s context, a close working relationship was formed with the Lloyd’s Country Manager in Poland, Witold Janusz.

Along internal and external data collection, local market players were interviewed, in order to assess market sophistication and maturity as well as its business fit with Lloyd’s unique selling points (USPs).


Appendix 5

> Data Limitations



Appendix > Data Limitations

Data limitations:

DATA LIMITATIONS

Please note the information contained in this document is based upon data collected from Xchanging and may be incomplete for some classes of business; for instance a substantial figure, which is missing from the REG 258 data set is comprised of UK Motor, which is not processed by Xchanging.

GROSS PREMIUMS:Original and additional inward premiums, plus any amount in respect of administration fees or policy expenses remitted with a premium but before the deduction of outward reinsurance premiums.

Lloyd’s figures are based on gross written premiums based on figures processed by Xchanging by processing year and country of origin.

COUNTRY OF ORIGIN:This denotes the country from where demand for the insurance / reinsurance emanates; i.e. the coverholder or policyholder, irrespective of the country to which the risk is classified for regulatory reporting purposes.

PROCESSING YEAR:This relates to the calendar year in which the premium, additional or return premium is processed by Xchanging, irrespective of the actual underwriting year of account of the risks (which is determined by the inception date of each risk).

Example: A policy holder in the UK insuring a holiday home in France would be classified as a UK risk by Country Of Origin, but French for regulatory reporting purposes. Similarly a risk incepting on 1st December 2007 would be classified at 2007 underwriting year of account but may not be processed by Xchanging until 2008 and so be allocated to the 2008 processing year.


Disclaimer

"This document is intended for general information purposes only.

Whilst all care has been taken to ensure the accuracy of the information Lloyd's does not accept any responsibility for any errors or omissions.

Lloyd's does not accept any responsibility or liability for any loss to any person acting or refraining from action as a result of, but not limited to, any statement, fact, figure, expression of opinion or belief contained in this document".


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