Best's Insurance News - New Chairman of Lloyd's Market Group to Continue Push for Contract Certainty

17 April 2006

LONDON (BestWire) - Contract certainty, an issue shaped by the acrimonious disputes after the 2001 terrorist attack on the World Trade Center, is at the top of Andrew Kendrick's agenda.

Kendrick is the London-based chairman and chief executive officer of Ace European Group Ltd. He is also the newly elected chairman of the Lloyd's Market Association, which represents underwriters operating at Lloyd's.

Contract certainty indicates the complete and final agreement of all terms between insurers and clients before the agreement takes effect. In Kendrick's view, it is closely linked with the continuing effort within Lloyd's to bring its operations into the modern era.

"Generally, it's all about process reform," Kendrick said during an interview in his office at Ace.

Kendrick is confident that Lloyd's will reach these twin goals. But he concedes that the recent past has not been encouraging. "Everybody's talked a good game in the last five or six years, but nothing's actually materialized."

Kendrick took over the LMA chairmanship from Dane Douetil, group chief executive of Brit Insurance Holdings plc (LSE:BRE). Douetil, who chairs the Market Reform Group, also was closely identified with business process improvements (BestWire, January 27, 2006). The continuation of old and inefficient ways, Douetil regularly told industry gatherings, amounted to a threat to London's competitive position in the world insurance market.

Kendrick sees much of his work as "carrying on the good work that he [Douetil] started. We're in the heat of a lot of change."

Kendrick became chairman and CEO of Ace European Group in November 2004. Before that, he was president and CEO of Ace Bermuda Insurance Ltd. (NYSE:ACE).

In his LMA role, Kendrick will have to face some uncomfortable realities. Among them is the still-fresh 70 million pound ($124 million) failure of Kinnect, Lloyd's electronic communications initiative. Lloyd's pulled out of Kinnect in January, killing the project, when it decided that the approach would not work.

And there is Bermuda, which attracted an influx of capital -- much of it from the London market -- following last year's major U.S. hurricanes. Lloyd's insurer Hiscox plc (LSE:HSX) has gone so far as to lay plans to move its headquarters from London to Bermuda (BestWire, Feb. 21, 2006).

Bermuda is becoming a preferred venue for start-up businesses. But, while Bermuda is undoubtedly efficient, Kendrick said it lacks a large infrastructure, and the ability to create one. Unlike London, for instance, Bermuda could not easily accommodate business involving extensive claims activity. "You can't have a really big operation [in Bermuda]," Kendrick said. "So you have to focus on certain lines of business."

One demonstration of London's strength is its continuing ability to attract capital, Kendrick said. "Even if you look at Lloyd's, which, disturbingly, has had some of the most appalling results, it still bounces back," he said. "It has the ability to regenerate itself."

The industry also is facing cost pressures, Kendrick noted. These constraints, he said, are particularly acute on the brokers, who have seen an important revenue stream come under attack as a result of the attentions of New York state Attorney General Eliot Spitzer.

Cost is likely to become an increasingly important factor for brokers, Kendrick said, as the U.K. Financial Services Authority continues to push for transparency and disclosure. The lesson from other financial services sectors is that such pressure tends to drive down commissions.

Kendrick is encouraged by such technical advances as big brokers creating links with large Lloyd's underwriters to promote electronic trading, particularly in the past six months. That bodes well for achieving process reform, he said.

Kendrick noted the perception that the FSA has taken its "foot off the pedal" in its drive for contract certainty. In March, FSA Chief Executive John Tiner announced that the regulator would put "contract certainty on the back burner, although we are not taking it off the stove altogether." (BestWire, March 22, 2006).

The FSA's reputed zeal has made it an object of resentment from within the U.K. financial services industry. The regulator's softened approach, Kendrick said, has been linked to the desire of Gordon Brown, the chancellor of the exchequer, to woo London's financial community. Brown is widely regarded as the successor-in-waiting to Prime Minister Tony Blair.

Generally, the U.K. regulatory environment could be described as tough, Kendrick said, adding that this tends to bring comfort and confidence to clients. While there is room for flexibility, he said, such an atmosphere demands that regulated businesses "be well managed and professional."

Kendrick concedes that the ways of the London market might appear arcane to the outsider. Quoting an old boss, he described insurance as simple business complicated by the people who are in it.

But Kendrick does not see the accumulation of history and tradition as a burden to London. "I think it demonstrates we're here for the long haul," he said.

Lloyd's currently has a Best's Financial Strength Rating of A (Excellent).

(By Robert O'Connor, London editor)