Lloyd’s of London reviews operations after losing $2.6 billion

People walk outside Lloyds of London's headquarters in the City of London. (Reuters)
Updated 01 August 2018
0

Lloyd’s of London reviews operations after losing $2.6 billion

  • Lloyd’s plans number of “workstreams”
  • Issues include costs of doing business, use of technology

LONDON: Lloyd’s of London is reviewing all aspects of its business, including its centuries-old structure, to ensure it is cost-competitive and responsive to both clients and members, especially after Britain leaves the EU, industry sources said.
The review, coming after a £2-billion ($2.64-billion) loss last year and the news in June that CEO Inga Beale will step down, goes to the core of the institution’s hybrid personality, senior insurers and other officials in London’s financial services sector said.
Lloyd’s has been holding board and other internal meetings and separate discussions with broader market participants on the best way forward, the officials said. Precize details of the review have not been disclosed, they said.
“A strategic review is being worked on,” said one financial services source, asking not to be named because he was not authorized to discuss it. Another source, a senior executive at a firm that supplies services to Lloyd’s members, said he understood that included looking at its unique structure.
“The most fundamental question is, what does Lloyd’s actually want to be?” the executive said.
At present, Lloyd’s is both a marketplace for its 80-plus syndicated members and an umbrella body that sometimes acts like an insurer by getting deeply involved in members’ day-to-day practices. It also regulates the members under the auspices of the UK government.
Asked whether Lloyd’s was conducting a strategic review, Chairman Bruce Carnegie-Brown told Reuters on Monday he would not use that term.
“To me a strategic review implies some kind of crisis, where you’ve got to put everything into a big hat and end up boiling the ocean. We are not interested in that. What I think we have is a series of improvements and ideas,” he said in a telephone interview.
He said Lloyd’s was looking at all aspects of the business, however — cost structure, technology, its role as a marketplace and a regulator, and how it mutualizes risk. He said recommendations from an “annual strategy day” in June were presented to the board last week and a number of “workstreams” were being set up.
“I think what we need to do is to look at all aspects of what we do, to try to make sure everything we are doing is done better and turn it into more of an exercise to keep turning the stones over of the things that we do to figure out if we can make things more efficient,” he said.
Carnegie-Brown said he did not see Lloyd’s relinquishing its regulatory duties but said there were “whole aspects of regulation that we need to look at to make sure that we are not duplicating what is already done by other regulators.”
If Lloyd’s was a pure marketplace, member syndicates could be more innovative, accommodating short-term losses for future gains, industry sources said. Doing so would risk Lloyd’s losing the single-A credit rating that benefits all members, however.
“If it’s a marketplace, it’s for each party to come to the market, it’s for them to work out what they want to offer,” the senior executive said, while an insurer would incorporate the individual groups operating within it to form a company.
“I do not think it is being crystal clear which one it is, or wants to be.”
The UK government is keen that Britain, the world’s largest commercial insurance center, remains competitive in financial services after Brexit. Lloyd’s is setting up a subsidiary in Brussels to maintain access to Europe’s single market.
“Lloyd’s needs to ensure that London keeps its edge in insurance, which is vital for the wider financial future of London,” the financial services source said.
Lloyd’s started life in Edward Lloyd’s coffee house in 1688. The futuristic look of its 14-story headquarters in the City belies an emphasis on customs and tradition.
Most business is still conducted face to face. Underwriters and brokers use briefcases or suitcases to carry paperwork around the building; some marine insurers record the sinking of ships with quill pens. The requirement for men to wear ties was relaxed only recently.
The market was almost brought to its knees by asbestos-related claims in the 1990s, which wiped out many of its individual investors, known as “names.”
Members include small underwriters as well as listed UK firms like Beazley and Hiscox and units of global insurers, specializing in complex commercial risks such as marine, aviation and niche energy markets.
Julia Graham, deputy chief executive at insurance buyers’ association Airmic, said Lloyd’s has set up a working group with her client organization to discuss improving their relationship. She said Airmic regularly met Lloyd’s at board level but that a meeting this month was “a bit more intimate.”
“The main point is that they asked us,” she said. “Lloyd’s is still a leader. It’s important that it remains relevant.”
Last year’s two-billion-pound loss, the first in six years, followed a record year of insurance losses from natural disasters globally. London also faces competition from rivals like Bermuda and Singapore.
Lloyd’s will be looking at ways to cut members’ costs, which have ballooned as a result of increasing regulatory and compliance paperwork and rising commissions from brokers, industry sources said. The high costs of operating from London and administrative expenses have also weighed, they said.
A new electronic processing system introduced by Beale, the first female chief executive of Lloyd’s, was unpopular with smaller brokers and underwriters.
“If you are pushing it through an electronic system, there will be little scope for enhancements or individual treatment, which is what a lot of people come to Lloyd’s for,” said industry veteran Andrew Bathurst, director of London and Dubai insurance broker PWS Gulf and a director of Mystic Capital.
Whether to continue implementing the new system at the current pace — 30 percent of all business this year rising to 80 percent next year — is likely to be part of the review, two insurance sources said.
Lloyd’s insurers have an expense ratio of 40 percent, according to ratings agency AM Best, which Paul Merrey, a partner specializing in insurance at KPMG, said is about 10 percentage points higher than competitors.
“The costs of operating are getting out of hand” due to increased regulation, said one senior underwriting source. He agreed the biggest question mark was over structure, however: “What is Lloyd’s? Is it a market or is it an insurer?”


Undersea gas fires Egypt’s regional energy dreams

Updated 18 November 2018
0

Undersea gas fires Egypt’s regional energy dreams

  • In the past year, gas has started flowing from four major fields off Egypt’s Mediterranean coast
  • Gas production has now hit 184 million cubic meters a day

CAIRO: Egypt is looking to use its vast, newly tapped undersea gas reserves to establish itself as a key energy exporter and revive its flagging economy.
Encouraged by the discovery of huge natural gas fields in the Mediterranean, Cairo has in recent months signed gas deals with neighboring Israel as well as Cyprus and Greece.
Former oil minister Osama Kamal said Egypt has a “plan to become a regional energy hub.”
In the past year, gas has started flowing from four major fields off Egypt’s Mediterranean coast, including the vast Zohr field, inaugurated with great ceremony by President Abdel Fattah El-Sisi.
Discovered in 2015 by Italian energy giant Eni, Zohr is the biggest gas field so far found in Egyptian waters.
The immediate upshot has been that since September, the Arab world’s most populous country has been able to halt imports of liquified natural gas, which last year cost it some $220 million (190 million euros) per month.
Coming after a financial crisis that pushed Cairo in 2016 to take a $12 billion loan from the International Monetary Fund, the gas has been a lifeline.
Egypt’s budget deficit, which hit 10.9 percent of GDP in the financial year 2016-17, has since fallen to 9.8 percent.
Gas production has now hit 184 million cubic meters a day.
Having met its own needs, Cairo is looking to kickstart exports and extend its regional influence.
It has signed deals to import gas from neighboring countries for liquefaction at installations on its Mediterranean coast, ready for re-export to Europe.
In September, Egypt signed a deal with Cyprus to build a pipeline to pump Cypriot gas hundreds of kilometers to Egypt for processing before being exported to Europe.
That came amid tensions between Egypt and Turkey — which has supported the Muslim Brotherhood, seen by Cairo as a terrorist organization, and has troops in breakaway northern Cyprus.
In February, Egypt, the only Arab state apart from Jordan to have a peace deal with Israel, inked an agreement to import gas from the Jewish state’s Tamar and Leviathan reservoirs.
A US-Israeli consortium leading the development of Israel’s offshore gas reserves in September announced it would buy part of a disused pipeline connecting the Israeli coastal city of Ashkelon with the northern Sinai peninsula.
That would bypass a land pipeline across the Sinai that was repeatedly targeted by jihadists in 2011 and 2012.
The $15-billion deal will see some 64 billion cubic meters of gas pumped in from the Israeli fields over 10 years.
Independent news website Mada Masr reported that Egypt’s General Intelligence Service is the majority shareholder in East Gas, which will earn the largest part of the profits from the import of Israeli gas and its resale to the Egyptian state.
Kamal said he sees “no problem” in that, adding that the agency has held a majority stake in the firm since 2003.
“That guarantees the protection of Egyptian interests,” he said.
Ezzat Abdel Aziz, former president of the Egyptian Atomic Energy Agency, said the projects were “of vital importance for Egypt” and would have direct returns for the Egyptian economy.
They “confirm the strategic importance of Egypt and allow it to take advantage of its location between producing countries in the east and consuming countries of the West,” he said.
The Egyptian state is also hoping to rake in billions of dollars in revenues from petro-chemicals.
Its regional energy ambitions are “not limited to the natural gas sector, but also involve major projects in the petroleum and petrochemical sectors,” said former oil minister Kamal.
Minister of Petroleum and Mineral Resources Tarek El Molla recently announced a deal to expand the Midor refinery in the Egyptian capital to boost its output by some 60 percent.
On top of that, the new Mostorod refinery in northern Cairo is set to produce 4.4 million tons of petroleum products a year after it comes online by next May, according to Ahmed Heikal, president of Egyptian investment firm Citadel Capital.
That alone will save the state $2 billion a year on petrochemical imports, which last year cost it some $5.2 billion.
Egypt is also investing in a processing plant on the Red Sea that could produce some four million tons of petro-products a year — as well as creating 3,000 jobs in a country where unemployment is rife.