November 17, 2003 12:57 a.m. EST
The Master of Disaster
By CHARLES FLEMING
LONDON -- Lloyd's of London, a major player in the global insurance industry, has almost collapsed twice in the past 10 years, hammered by multibillion-dollar insurance claims on everything from hurricanes to oil spills to asbestos.
It is Rolf Tolle's job to keep that from happening again.
The 56-year-old German reinsurance veteran was recruited last March to act as overseer to the Lloyd's of London underwriters -- a collection of 71 syndicates or insurance groups that compete to offer insurance but operate under the Lloyd's banner.
Through a mixture of cajoling and restricting the overall exposure that the collective underwriters can bear in any one area, he aims to smooth out the peaks and valleys that are inevitable in a cyclical business such as insurance but which had become excessive at Lloyd's.
"What we want to do is ensure that the great dramas associated with Lloyd's financial performance in recent years, both the highs and the lows, become a thing of the past," says Lloyd's chairman Peter Levene, Lord Levene of Portsoken.
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It is all a deliberate break from the tradition-bound ways of the Lloyd's market, where uniformed waiters still haunt the trading floor as a reminder of Edward Lloyd's original coffee shop, and where an old ship's bell is rung every time a shipwreck is reported. Lloyd's brass, who are elected by the syndicates and brokers who work within the market, say they want an outsider to shake up the cliquish Lloyd's world. "We were looking for someone ... who understood Lloyd's but was not a part of it," says Lloyd's Chief Executive Officer Nick Prettejohn.
Mr. Tolle's first big test comes this month when he and his nine-person team complete their review of next year's business plans for the syndicates. It will be no easy task to ensure that they don't undermine each other, and Lloyd's as a whole, by taking on high risks at low cost to win business.
Because Lloyd's is a market, not a company, Mr. Tolle can't intervene on the pricing of individual insurance contracts without infringing market-fixing rules. But he can review and determine the overall risk that the syndicates take on in a particular sector, such as aviation insurance. "I can't get involved in the specific pricing of risks," he says. But, "if they can't persuade me about the likely level of profitability, I can cancel their capacity for certain lines. That's where my power lies."
"Rolf is trying to do something that's never been done," says veteran Lloyd's underwriter Elvin Patrick, who runs Cathedral Capital PLC's Lloyd's syndicate. "He's trying to regulate a marketplace, maintaining its integrity, its reputation and its profitability, but without controlling the capital."
If he is successful in tempering the swings of the Lloyd's market, the insurance industry world-wide is likely to feel the impact. More than a quarter of all commercial aviation in the world is covered by a Lloyd's contract, and 12% of the world's shipping insurance contracts are written here each year. U.S. financial and industrial corporations paid some $8.2 billion in Lloyd's premiums this year. This year Lloyd's syndicates will write an estimated £14.4 billion ($24.3 billion) of insurance cover between them, more business than the market has ever done before.
After almost collapsing twice in the past 10 years, and ruining many of the market's traditional individual backers, or Names, Mr. Tolle has arrived at a time when Lloyd's is relatively strong. Private investors account for only about 13% of Lloyd's business today, with the lead role now played by insurance companies, which use Lloyd's to obtain access to certain types of business, including shipping and aviation. And rates in most lines of business are reckoned high enough at the moment to ensure comfortable profits this year, with the exception of marine and aviation insurance.
But insurance is a notoriously cyclical market: Even though Lloyd's reported a swing to an £834 million profit in 2002 from a £3.1 billion loss in 2001, no one has forgotten the pain of the 1990s. What is more, in an ironic twist, Lloyd's is having problems with its own insurance policies, as a group of reinsurers (or insurers for insurers), led by Swiss Re, are now refusing to pay a £290 million claim by Lloyd's to reimburse payments made by its main bailout fund. All the syndicates contribute to the fund, which is used to rescue those that run into difficulties. Neither side will discuss the case, which is in arbitration, but if it goes against Lloyd's, it could weaken the Central Fund, which currently amounts to between £700 million and £800 million.
Though the review now under way will be the best demonstration of Mr. Tolle's clout, he already has been preaching his message that Lloyd's as a whole shouldn't overstretch again.
He held a number of bully-pulpit meetings this summer with Lloyd's marine and aviation underwriters. Warning them that prices were falling too low to cover likely future losses, his implicit threat was that if syndicates continued to cut prices, he wouldn't approve their business plans. "His message was clear: If people are going to lose money on such business, they weren't going to do it at Lloyd's," recalls Simon Beale, one of the insurers at the meeting. Mr. Tolle declined to comment on any meetings with underwriters.
Insurance brokers offer mixed views on how successful his haranguing has proved to date. "Reductions in aviation [rates] have not been as much as feared," says Charlie Cantlay, deputy chairman of insurance broker Aon's United Kingdom business, suggesting that syndicates have listened to Mr. Tolle's message. But shipping insurers say that some underwriters in the marine area are continuing to cut rates.
Some of those burnt by Lloyd's in the past are skeptical about how successful Mr. Tolle can ever be in breaking Lloyd's of its wild swings. "The cycle is inevitable. A broker just has to go once around the trading floor, and he'll get a lower rate," says Oliver Carruthers, a former British colonial officer in Northern Rhodesia. Although not a Name himself, Mr. Carruthers says his wife "lost heavily" as a Name in the 1970s. Today he works as executive secretary to High Premium Group, a lobby group for 350 Lloyd's Names who each underwrite more than £1 million of business a year. He predicts that Mr. Tolle's role will evolve into one of chasing existing trouble, rather than preventing accidents that haven't yet happened.
Mr. Tolle, a keen card player who paid his way through his political-science studies in Berlin in the early 1970s on his poker gains, delights in his role as an outsider to the market. Dubbed "the Weird Beard" by some Lloyd's insiders, he chuckles as he recalls his first visit to the prestigious Royal Ascot horse races this summer. Declining to wear the traditional top hat and tails, he responded to a broker's lighthearted jibe by saying that next year he would return wearing a Prussian spiked helmet.
The current woes of one Lloyd's syndicate, run by GoshawK Insurance Holdings, underlines another reason why Mr. Tolle's mission is fraught with difficulties. GoshawK's syndicate, known by its Lloyd's number 102, ran up a £44.8 million loss in the first six months of the year as some of its life-insurance, civil-liability and satellite policies written in the past three years went bad. Late last month, Lloyd's announced that it had suspended GoshawK from writing new business in Lloyd's, the first time that Mr. Tolle's Franchise Performance Board has cracked down on a poorly performing syndicate. However, many Lloyd's insiders are asking Monday whether the new review system, had it been in place two years earlier, would have spotted GoshawK's problems before they occurred. Mr. Tolle acknowledges that it is a valid question.
Write to Charles Fleming at firstname.lastname@example.org
Updated November 17, 2003 12:57 a.m.
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