Tolle Rallies Lloyd’s Troops to ‘Stand Firm as Cycle Slips’

In an article on the Lloyd’s web site Franchise Performance Director Rolf Tolle noted that “Lloyd’s companies are demonstrating a strong commitment to managing the underwriting cycle as market conditions continue to soften across the industry.”

But he warned that some market businesses need to take a more robust approach to underwriting management, adding that his department will be monitoring their performance closely. “We are a marketplace of nearly 70 syndicates,” he explained. “You will always have discrepancies, from the best to those who have a steep learning curve ahead of them.”

Speaking in a new podcast interview (available on the Lloyd’s web site), Tolle stressed that he expects Lloyd’s syndicates to take more drastic cycle management steps next year, in response to softening market conditions. His warning noted that surveillance of Lloyd’s MGA’s will be reinforced in 2008, and that his enforcers would “encourage those agents who may not be so committed as others to proper cycle management to get up to speed with their efforts.”

Tolle pointed out that some insurance lines, including aviation airline business and different segments of UK liability, have been under severe pressure for a long time. International rates are falling faster than they are in the US as market dynamics change. This has resulted in “increasing pressure on the newer Bermudian entities to diversify into areas that they haven’t been active in before,” according to Tolle. “That increases competition with the result that prices are falling.”

Asked, however, whether more Lloyd’s Syndicates should reduce capacity for the 2008 underwriting year, Tolle indicated that their emphasis should be on premium reduction, as opposed to capacity reduction. “I’ve told those syndicates that still have unaligned capacity that they should keep that capacity as high as possible in case something happens and they need to react very quickly,” he indicated.

That last point raises a few questions, beginning with what are they supposed to be ready to react to. As Lloyd’s has recently admitted several new Syndicates (with their additional capacity), Tolle’s stance is perhaps understandable. However, Lloyd’s capacity, approximately $32 billion in 2007, is there to be used – if not why accept it? This puts Mr. Tolle in the position of advocating restraint, while Lloyd’s makes it more difficult to do so.

He did acknowledge that there are sometimes good reasons for companies to maintain premium writing levels – if they are building a portfolio of business, for example. However his Franchise Performance Directorate will remain watchful. “We may have to follow up on their newer areas of activity to see whether their planned assumptions are holding true,” Tolle indicated.

He said Lloyd’s has built a solid reputation, and the challenge for its companies in the future is to solidify that reputation by showing the world that they can manage their underwriting through a downturn and be ready to take advantage of improved conditions when the market turns.

Commenting on his decision to renew his contract with Lloyd’s through 2009, Tolle said he is still enjoying the challenges posed by his unique job. “Lloyd’s isn’t a company where you can carry through change from the top. It is a place where you have to facilitate, push, pull, find consensus and build trust,” he explained. “But we have a wealth of talent – in the centre and in the market – and it’s very rewarding to work with people at the top of their profession.”

Source: Lloyd’s – www.lloyds.com