1. Lloyd’s and the next 327 years
Entrepreneurial Insurance Symposium
Hank Watkins, President, Lloyd’s North America
September 1, 2015

2. Emerging Risks and innovation
What is Lloyd’s?
What do we insure?
Lloyd’s in the US
Modernizing Lloyd’s
Emerging Risks and innovation
Q&A 2 2 2

3. What is Lloyd’s?

4. The best known, least understood brand in (re)insurance
This presentation will help to clarify some misconceptions about Lloyd’s and help you understand how we may be able to help you and your clients needs.

6. Lloyd’s key characteristics
Lloyd’s is a market, not a company
We have a long
history of helping clients manage risk
taking, dating
back to 1688
The Lloyd’s
market insures
complex and
specialist risks
London based
international
business
Lloyd’s expertise is based on 327
years of experience and a Performance
Management Directorate that oversees
responsible risk taking
Regulated by the Prudential Regulatory
Authority (PRA) and the Financial Conduct Authority (FCA)
Products are
distributed
through
brokers and
coverholders

7. 96 4,500 219 327 200 Footprint of the business syndicates coverholders
of specialist
underwriting
expertise
coverholders
offering a local route
to Lloyd’s
brokers
bringing business from…
327
200
countries and territories for over…
years of
underwriting
experience

8. The world’s leading specialist (re)insurance market

9. Lloyd’s + London Company Market = Total premium of US$83.62bn in 2013
Overall London company market
US$40.29bn
US$43.33bn
US$43.33bn
The overall intellectual and economic premium total for the London company market in 2013 was £24.276bn, up by 0.2% on the 2012 total figure of £24.225bn reported last year.
Combining the overall company market figure with the £26.106bn gross written premiums reported by Lloyd’s of London for 2013 gives a total income for the London Insurance Market of £50.382bn
Exchange rates
31 Dec, $1.5 = £1
31 De, $1.66 = £1
Source: IUA, London Company Market Statistics Report, October 2014
Exchange rate as at 31 December £1 + $1.66

10. The Lloyd’s market: 58 managing agents running 96 syndicates
Lloyd’s is a marketplace of independent businesses whose combined experience and expertise deliver risk transfer solutions to an increasingly complex world.

11. Lloyd’s syndicates - backed by some of the best known names in global insurance
Source: Lloyd’s Annual Report 2014

12. 15% 18% 11% 8% 44% 4% Lloyd’s global reach
Source: Lloyd’s Annual Report 2014

13. Classes of business by region – 2014
Source: Lloyd’s Annual Report 2014

14. Financial Results

15. Five year overview of Lloyd’s performancebn
2010
2011
2012
2013
2014
Gross written premium
$34,759
£22,425
37,339
£23,337
40,025
£25,173
39,959
£25,615
41,717
£25,283
Combined ratio
93.3%
106.8%
91.1%
86.8%
88.1%
Investment return
$1,950
£1,258
1,528
£955
2,084
£1,311
1,309
£839
1,724
£1,045
Result before tax
$3,446
£2,195
(800)
(£516)
4,517
£2,771
5,320
£3,205
4,931
£3,161
Return on capital (pre-tax) %
12.1
(2.8)
14.8
16.2
14.7
Rates of exchange
Year-end
$1.57
$1.55
$1.63
$1.66
$1.56
Average
$1.55
$1.60
$ 1.59
$ 1.56
$1.65
Source: Lloyd’s Annual Report 2014

16. Lloyd’s ratings
Three of the world’s leading rating agencies validate Lloyd’s robust capitalisation and the market’s financial strength.
As all Lloyd’s policies are backed by mutual security, the following ratings apply to the entire market.
Source: Lloyd’s Annual Report 2014

17. What Can be (Re)insured at Lloyd’s?

18. The Lloyd’s market is known for its specialist expertise…

19. …and an appetite for unusual risks requiring innovative solutions
Oscar jewels
Ilja Gort has insured his nose for €5m.
A Dutch wine maker has insured his nose for €5m to cover against any incident that could threaten his livelihood.
- GREAT BBC VIDEO INTERVIEW ON THIS LINK
More recently, Troy Polamalu’s hair for the Head & Shoulder’s division of Procter & Gamble
Coffee tongue - Lloyd's has insured Costa Coffee's Italian Master of Coffee's tongue
American football
Smile - Ugly Betty star America Ferrera's smile insured at Lloyd's for $10m. The policy was bought by at home teeth-whitening product Aquafresh White Trays as part of a promotion involving the celebrity which aims to raise money for US charity Smiles for Success.
Santa Claus - Growing regulatory red tape and fears over litigation, combined with an increasingly risky logistics environment has made it difficult for Santa Claus, who also trades as Father Christmas, to obtain the risk transfer solutions he needs to stay in business.
In the 1940s executives at 20th Century Fox had the legs of Betty Grable insured at Lloyd’s for $1 million each.
Rolling Stones’ guitarist Keith Richards. 19

20. Accident & Health Agriculture Bloodstock Construction Cyber D&O Event Cancellation Entertainment Fine Arts

21. Intellectual Property Kidnap & Ransom Political Risk Professional Liability Reputational Risk Sports (including disability) Trade Credit Transportation Weather

22. Lloyd’s in the US
Lloyd’s writes every class of business in the US except for life 22

23. Breakdown of Lloyd’s 2014 total US business

24. Lloyd’s America regional structure Your key contacts
Locations
Atlanta, GA 1
Boston, MA
Pat Talley
Central Regional Director
Frankfort, KY/ Chicago 2
Chicago, IL
Hank Watkins
President, NA
New York
Joseph Gunset
General Counsel, US
New York
Kiran Bhovan
Senior Manager
Comms
London 3
Frankfort, KY 4
Los Angeles, CA 5 7 7
New York, NY 19 19 6 - - 5 5
US Virgin Islands 7 4 4 13 13 5 5
Glenn Dorr
Northeast Regional Director
Boston 1 1 5 5 39 39 23 23 - - 23 23 14 14 4 4 28 28 65 65 3 3 11 11 10 10 64 64 15 15 15 15 1 1 11 11 9 9 15 15 6 6 23 23
32 members of the Lloyd’s America team responsible for market development and regulatory compliance. 22 22
Rodney Smith
Southeast Regional Director
Atlanta 11 11
Rich Magrath
Western Regional Director
Los Angeles 8 8 16 16 10 10 3 3 39 39 6 6 24 24 11 11 2 2 34 34 - -
Hank Feuerzeig
General Representative
US Virgin Islands
32 members of the team in total

25. Engaging with our communities
Trade, business, educational and philanthropic organisations
Industry partners
Next Generation
CSR
School of Risk Management

26. Accessing Lloyd’s from the US

27. Business streams at Lloyd’s
Business flow
Capital flow
Corporation
of Lloyd’s
(Re) Insured
Lloyd’s
broker 59
Managing agents 94
Syndicates
Members
Corporate and
Non-corporate
Reinsurance broker
Retail broker
Coverholder/ Wholesale broker
Figures as at 31 December 2014

28. Modernizing Lloyd’s Target Operating Model (TOM)

29. ‘London Matters’ highlighted the threat to London's position as the global centre for commercial (re)insurance
The London Market is the largest global centre for commercial and specialty risk and is in a position of strength
Ongoing investment in making the market more accessible and efficient
Continued strong brand with financial strength ratings reaffirmed, outlook revised to positive
Continued focus on our collective vision and goals
Increasing retention of risk in high growth developing markets
Higher acquisition costs make London a more expensive market to deal with than its competitors
An inflexible business servicing model that is inefficient and slow to change, reducing London’s competitiveness
The LMG research ‘London Matters’ highlighted a number of obstacles preventing the London Market from fulfilling its potential:
Unique London Market requirements that cause barriers to entry
Increasing retention of risk in high growth developing markets
Higher acquisition costs making London a more expensive market to deal with than its competitors
An inflexible operating model that is inefficient and slow to change, with:
inefficient paper-based processes,
duplicative tasks,
lack of structured and useful data,
little automation
However, the world is changing which is challenging London’s position
These challenges are recognised by the market and there is acceptance of the need to change

30. We are seeking to move from a model with many inefficiencies and frictional costs to one that enables an efficient and accessible market of choice
Design principle
One touch data capture
Current operating model
Target operating model
Inefficient and paper based
Highly effective and accessible
Inflexible
Economies of scale for common activities
The London Market has been working together to develop a target operating model – which we call the TOM – that will modernise the market and make it easier to do business. There are two principles at the heart of TOM:
First is one touch data capture, which enables us to enter data once on behalf of all carriers and brokers, rather than each doing it themselves over and over again. It reduces the risk of error and costly rework caused by entering data multiple times in multiple formats – as happens today.
Second, is enhanced global shared central services. This will centralise many of the Market’s non-competitive tasks and make them more efficient and consistent, while avoiding duplication. The idea here is to build a shared service hub in London as well as regional shared services that serve our global regions but are aligned in terms of processes, technology and data with the central hub.
Rather than expending so much time and expense on administration, this will allow brokers and carriers to concentrate on the areas that differentiate their business and make it easier to access the London market from our global markets.
Every single aspect of the target operating model has evolved from a collaborative effort by not only the managing agents but also the brokers and our company market colleagues here in London and across the world.
In addition, it does not propose a fundamental departure from current market modernisation activity. Instead, it provides a vision that explains why we are doing the work we are in placement, central services, claims, and delegated authorities, defines the overall costs and benefits, ensures that the work is linked together so that once it is implemented, the market has a consistent set of processes and data flows, plugs gaps in data, process and technology, and provides a programme framework based on best practice that actually allows us to deliver something of substantial value this time around.  
Fragmented
Enhanced data sets
Enhanced central services
Design principle

31. Responding to emerging risks: our role in an increasingly innovative industry

32. Lloyd’s defines an emerging risk as… “an issue that is perceived to be potentially significant but which may not be fully understood or allowed for in insurance terms & conditions, pricing, reserving or capital setting”.

33. Emerging risks management
Quantification
For product innovation & exposure management
Evaluation
Judgment of significance
Assessment
Decision-making resources (scenarios)
Awareness
Thought leadership
Horizon scanning: we draw on every available knowledge resource; networks are just as important as published research. It’s important to recognise that there are no tools for perfect horizon scanning: individual curiosity is vital.
Evaluation: we regularly review the results of our horizon scanning and make an initial evaluation of the potential significance of the issue for insurance. We also draw on wider sources, including an annual review of Lloyd’s managing agents.
Awareness: thought leadership is designed to present an evaluation of the potential significance of an issue for insurers and our clients. It is a very effective tool to stimulate action and collaboration.
Assessment: scenarios are a vital tool for translating emerging risks in to real issues for business. We aim to draw on subject matter expertise and insurance practitioner knowledge to devise plausible but extreme scenarios that can explore the significance of issues. Scenarios are not predictions of what will happen: they are plausible visions of the future that can be used as tools to develop products and build resilience.
Quantification: the outputs of scenarios enable us to gauge the magnitude and nature of impacts. We also invest in the development of models to assist with the quantification of impacts.
Identification
Horizon scanning

34. Emerging Risks Survey 2014 (Lloyd’s Managing Agents)
The slide shows the results of the 2014 Lloyd’s Emerging Risks Survey. We asked Lloyd’s managing agents to grade 35 emerging risks according to their potential impact in 2-5 years, and the quality of knowledge/tools available to assess the risk (measured as uncertainty). We capture uncertainty, not likelihood, because the aim of our research and scenario development is to reduce uncertainty, not predict the future. Uncertainty is a metric that we can seek to influence.

35. Emerging Risks Latest Lloyd’s reports
Drones take flight: Key issues for insurance
Business Blackout: The insurance implications of a cyber attack on the US power grid
Food system shock: The insurance impacts of acute disruption to global food supply
California Flood: Central Valley risk analysis
View all reports at

36. Until next time… Global Underinsurance Risky Cities

37. This graph shows economic and insurance loss in 2011 for six of the biggest cat events – Japan, Thailand, Australia, New Zealand, US Tornadoes and Irene.
Red circle is the economic loss
Green circle is the insured loss
And finally, blue shows, as a subset, the amount of claims incurred by Lloyd’s.
It is immediately apparent that the composition of these circles is very different in the US, and New Zealand than others.
In the US, out of an economic loss of $25bn, almost $18bn was insured.
In Thailand, Only $11 bn of the $44bn loss was insured.
Australia - Flood cover (excluding storm flood) is given very sparingly in the Australian market and where it is given it is limited to flash flood (howsoever defined). Torrential monsoonal rains prompted severe flooding across Jakarta last month, leading to at least 41 deaths. Government officials reported insured losses were expected to top IDR3 trillion (US$311 million) and total economic losses would reach IDR32 trillion. (US$3.3bn)
Significant flood damage also occurred across portions of Australia’s Queensland and New South Wales.. The Insurance Council of Australia (ICA) declared a catastrophe in the two provinces, with a combined 27,800 claims filed and payouts expected to exceed A$300 million (US$313 million). Total economic losses in Queensland alone were estimated at A$2.4 billion (US$2.5bn)
No market agreed definition for flood.  The flood losses that were paid by Lloyd’s were mostly from mining interests where we are a specialty market, some binder losses on homeowners and small commercial. Treaty reinsurance was about 30% of the loss which is atypical.
 Cover in New Zealand (because of government sponsorship) is almost universal with a near 90% take-up..
There is a social and economic imperative to plug this gap.
But it is also a sign of the opportunity we have to grow in economies which are currently underinsured.
GDP growth rates in the high growth economies look good. But growth in insurance penetration looks even better…

38. Bridging the Gap - The cost

39. Launching on September 3, 2015. Visit www.lloyds.com

40. New risks provide new opportunities!
Primary class of business in 1680’s
Classes of business in 2014
Reinsurance 38%
Property %
Casualty %
Marine 8%
Energy 7%
Motor 5%
Aviation 3%
Source: Lloyd’s 2012 Annual Report

41. T Thank you! Stay in touch. Email hank.watkins@lloyds.com
Website lloyds.com/america
@lloydsoflondon
facebook.com/lloyds
lloyds.com/linkedin