From delivering telegrams on a bicycle to becoming CEO of Lloyd’s, Richard Ward talks about his personal life, professional background and how he exchanged the world of science for the insurance market.
What was your first job?
My first job was delivering telegrams on my bicycle for the Post Office. My first professional job, however, was as a research scientist.
Did you move into Financial sector right from the beginning? What were you doing before?
I was working as a research scientist for British Petroleum and heading up a research team. I was then offered a role in derivatives trading as part of their management development programme.
You were chief executive of the London-based International Petroleum exchange before moving to Lloyd's. What attracted you to the role at Lloyd's?
The offer was simply something I could not resist. It was a privilege to be asked to lead a British institution such as Lloyd’s, that has over 300 years of history and is so intertwined with not just the City, but the country – who would say no? Added to this, Lloyd’s sits at the forefront of insurance and financial services, so I could not think of a better place to move to.
I had already gone from science to business at BP and I enjoyed the change and the challenge. So with that still on my mind, I thought that a move from the IPE to Lloyd’s would be a great chance to move in to an industry that I had not worked in before.
What did you see as the biggest challenges that you faced when you joined Lloyd's?
Culturally, many at Lloyd’s were set in their ways, and needed that push to improve the efficiency of the market and to take the next step.
Once you had time to get to know the market, what surprised you or you found different than you first thought as an outsider?
From an outside point of view, the Underwriting Room and the way the underwriters and brokers do business may seem slightly antiquated, but it is one of the most efficient ways to for specialist risks to be placed.
Four years on, what are the challenges that Lloyd's face?
Managing the insurance cycle is still front of mind. With rates flat, and down in some lines, it’s imperative that we write quality business for profit and not for market share.
Is the brand of Lloyd's stronger now?
Definitely. We have continued to build the Lloyd’s brand over recent years and it has gone from strength to strength. We have nearly finished our Strategic Review, which is being conducted from a position of strength as opposed to a defensive position. We are asking questions like ‘how can we capitalise on opportunities’, and ‘where should our business focus be’, compared to past reviews that have looked in to what changes we may need to make to improve how we operate.
Does Lloyd's have a competitive advantage to its competitors in this current economic climate?
Yes we do. Lloyd’s offers a level of security that others struggle to. The subscription market structure means that policyholders can diversify their risk, while our central fund acts as a last resort for both syndicates and insurance buyers.
Some commentators have said that business will start coming to Lloyd’s due to this security.
From an investment point of view, we have been conservative in our assets so that we can take on more risk in our writing. While this investment strategy may have seemed too risk adverse in the boom times, we recorded an investment profit for the half year for 2009, while many others recorded losses, and have remained stable throughout the financial crisis.
The Global recession has negatively impacted on many financial services entities. How has Lloyd's fared?
We have fared quite well. Lloyd’s learnt important lessons about dealing with toxic assets in the 1990s and we have transformed our own business since; overhauling our risk management and market oversight. While we are not immune to the financial crisis, a number of commentators have suggested we are a relative safe harbour in this storm, and our ratings have remained stable compared to our peers.´
Do you think is the outlook for the reinsurance industry over the coming year?
It’s a challenging environment at present. There are reports that January reinsurance renewals have dropped 6% in the US and as much as 10% in the UK. With a lack of any major catastrophes as well, this looks to continue.
Do you think that the regulatory regime under which the industry operated will be impacted as a result of the meltdown in the banking world?
What we currently face is not an insurance crisis, but a banking crisis. Unlike the banks, the insurance industry is working normally, accepting risk and settling claims, and we hope that regulators understand and appreciate the difference.
For the financial sector as a whole, what we need is better regulation – not more – and it must be proportionate and balanced.
The implementation of Solvency II in 2012 is the principal regulatory challenge facing Lloyd’s.
We strongly support Solvency II and consider it a positive development in harmonising insurance regulation within the EU and raising standards in risk management.
There is no doubt that London is under attack as the insurance centre of the world. Regional markets are becoming stronger and more business is being retained locally. What has Lloyd's done to counter this trend?
While emerging markets are growing, they are far from equaling the dominance of London and New York. With that aside, however, we recognize the importance of emerging markets and actively play a part in doing business there.
We opened our first office in China nearly three years ago, and we were the first admitted reinsurer in Brazil, opening an office in Rio de Janeiro last year. We have also opened offices in Portugal, Sweden and Ireland – all last year.
We are also working with regulators in the India to be allowed to access that market.
Will Lloyd's continue to open operations around the World? Where next?
We work in partnerships with the market to see where there is demand. We are very keen to work in India, and we are still reviewing options in the Middle East.
Another challenge to London is the current UK tax regime. What do you think about those Reinsurers who are moving their operations out of the UK? Do you think this is a trend that is likely to continue? What impact will this have on the industry and London's position?
The fact that we are still seeing organisations redomiciling offshore and others openly considering it, suggests that the Government needs to take heed and listen to businesses’ concerns to keep the UK competitive.
Tax is obviously one element in a location’s overall competitiveness, but is by no means the only element.
Our job is to ensure that Lloyd's remains the market of choice by enhancing the many benefits of trading here, which are all independent of the tax regime.
That said, it is vital that the UK is competitive in tax terms in order to maintain its position as a financial centre and to stem significant losses of capital and economic activity from the UK.
There seems to be a shift in the way that Lloyd's is distributing its products. the opening of the market to non-Lloyd's brokers is seen by many as a 'dumbing down' of the market. What are your thoughts on this comment?
Lloyd’s is a broker market, and they are one of our key stakeholders, so it makes sense to open up the market to them and not have any artificial barriers to their participation. Allowing all brokers to place business brings us more in to line with our competitors.
Brokers wishing to do business with Lloyd’s will still need to pass the same quality standards as Lloyd’s brokers, so we are not ‘dumbing down’ the market.
How has the change in the by-laws actually been perceived by the broking community? Have regional brokers actually been signing up?
When we changed the LRO we were not expecting a flood of brokers to sign up. It was more about bringing us in to line with our competitors and making the market accessible in the future.
Now let us turn to the thorny question of electronic commerce. Lloyd's is a long way behind other markets in the use of electronic trading. Why is this the case?
There is actually extensive use of technology in the Lloyd’s market and we’re not behind other market at all. Our focus is to ensure that all information is distributed electronically, leaving the actual placement of risk - the trade between broker and underwriter – to be conducted in the most appropriate manner, whether face-to-face of electronically.
Face-to-face trading is a corner stone of how Lloyd’s does business and we do not see this changing. We are currently undertaking several initiatives that will see technology support the trading process, but electronic trading is not something that we are looking to do.
There appears to be a misconception by many that using an electronic trading platform will signal the demise of the broker/underwriter role. What are your views on this?
Brokers and underwriters negotiate a large raft of complex issues when a risk is being placed, and this can not be replaced by electronic means. Where technology helps dramatically is in supporting this process.
How has the market's use of electronic solutions evolved since you took over as CEO?
I remember presenting Lloyd’s 2005 Annual results and saying that a lot of good progress was being made in the use of technology. Since then the use of technology is simply part of everyday business. Lloyd’s now sees over 90% of claims and premiums processed via the technology repositories, as well as all new policies are issued electronically.
Brokers and managing agents are also taking advantage of new electronic market infrastructure to streamline transactions, lowering their costs and at the same time improving the quality of service to their clients.
We have also successfully launched the Lloyd’s Exchange, which is a messaging hub that will allow the sending and receiving of electronic messages between brokers and underwriters to an ACORD standard. This allows underwriters and brokers to send endorsements, placement messages and other detailed communications using a common standard and a single system interface. The market has greatly supported this, with over 60% of brokers and 80% of managing agents by capacity signing up to use it.
Can you see the day that Lloyd's follows other markets such as IPE?
The IPE and Lloyd’s are completely different markets, and can not be compared. The IPE is a buy/sell market with price being the only variable, while Lloyd’s is about in-depth negotiations between brokers and underwriters regarding tailored solutions for clients’ risks.
As it is early in 2010, what were your new Year's resolutions if any? If you had to write some resolutions for Lloyd's, what might they be?
For the market, it would be to continue to be disciplined in writing business for profit and not for market share. For Lloyd’s itself; to continue to deliver initiatives that improve the efficiency of, and access to, the market.
Where were you born/educated? Did you attend university?
I was born west of London and I obtained a First Class Honours degree and a PhD in Physical Chemistry from Exeter University.
Are you married? Do you have children?
I’m married with two children.
What are your main hobbies?
Dinghy sailing, hockey and skiing.
