Lloyd’s FD on the aftermarth of 11 September

Lloyd's FD on the aftermarth of 11 September

On 11 September Lloyd's of London finance chief Andrew Moss was on management away day with other top honchos from the world's most famous insurance market.

As they rushed back to the landmark Lloyd’s building in the heart of the City of London’s insurance quarter, they all had several things on their mind.

Their most immediate call was whether to evacuate the Lime Street tower – 12 storeys high and the workplace of around 4,000 people. They did, moving to a contingency site elsewhere in the City.

They also would have known that several large insurance organisations had offices in the World Trade Centre and that friends and contacts within the close-knit and sociable insurance community would have lost their lives as its twin towers collapsed.

They also knew that the terrorist attack and resulting devastation would have dramatic consequences for the Lloyd’s insurance market and that they faced a tumultuous few months of hard work totting up the market’s losses – and, importantly, convincing any doubters that Lloyd’s insurers could bear the loss.

Estimating the loss
For Andrew Moss, a 43-year-old chartered accountant headhunted from his previous position as CFO of the investment bank of HSBC to join Lloyd’s in October last year, this meant overseeing an enormous calculation.

Given that Lloyd’s has a regulatory duty to remain solvent at all times, the first task for Moss was to try and estimate the likely loss to the Lloyd’s market as a whole. This was not easy to do when you consider that the market consists of 108 underwriting syndicates, acting as separate businesses and insuring an impressive array of risks.

Lloyd’s insurers, for example, underwrite business in more than 100 different countries, insure around 70% of FTSE-100 companies, and have around a quarter of worldwide aviation insurance. The total 2001 capacity of the market was more than Pounds 11bn.

The first estimate
‘We had our first estimate from the market within 36 hours with information from all 108 syndicates. We made a conscious decision not to go public and did a second pass in much more detail and published a number on 26 September,’ says Moss, talking to Accountancy Age from his spacious office in the corner of the fifth floor, a month after the tragic events of 11 September.

The figure that Lloyd’s published was a net exposure of Pounds 1.3bn. It announced this along with assurances that the market’s strong capital base would absorb the loss – even though it represented 12% of its 2001 capacity.

Moss admits that such calculations are enormously complex and subject to many uncertainties – subsequent estimates by analysts indicate that the final losses figure for Lloyd’s could be substantially higher.

But, he points out, the market has a risk management process in place in which they model the potential losses arising from disasters – for example, two jumbo jets colliding – so calculating the loss from a large disaster is something they are practised at.

The statement put out with the estimate said Lloyd’s had ‘collated and analysed estimated losses from over 100 syndicates, examined the quantity and quality of reinsurance arrangements, and worked through the solvency issues for thousands of its members – both corporate and individual. A further cross-check of existing “realistic disaster scenarios” outcomes was also undertaken’.

Investor relations management
But Coopers & Lybrand-trained accountant Moss says that his role following the disaster has been about much more than doing giant sums. ‘It’s been an extremely busy month,’ he says, ‘not just working on the losses, but focusing much more on the market going forward. That’s where the investor relations part of the job comes into it a lot.

‘When you get this sort of loss, rumours circulate about the market’s ability to trade forward. We are at the centre and know those rumours are ill-informed, but we have spent a lot of time talking to a range of people – ratings agencies, the media and banks, for example – to make sure they had a reasonable picture.’

He adds with a only a hint of irritation: ‘We do a lot of analysis. Unlike others speculating about us, we were analysing our position.’

Moss admits that confidence is crucial but insists: ‘Lloyd’s has always paid all its valid claims and will continue to do so.’

A unique role
It is the variety of his role that Moss says is the major attraction of the job – and variety is something that he is not short of, particularly during the past couple of months. Indeed, his role is unlike any other.

Lloyd’s is a unique organisation. On the one hand it is a collection of independent businesses – a marketplace for insurance with more than 120 brokers registered to place risks with its underwriters.

On the other hand, the businesses are tied together by a common infrastructure and regulatory structure as well as being backed by a central fund, into which all the underwriters pay an annual contribution.

Moss says he has two hats – as FD of the corporation and FD of the market.

Wearing two hats
The corporation, which provides the infrastructure and central services for the market, has annual income of Pounds 170m, and has been subject to a rationalisation and outsourcing process.

Talking about his market role, he says: ‘The key issue as far as the market is concerned is risk management. We set the capital requirements and measure the solvency of all the members in the market.’ In addition to all this, Moss looks after the IT function, meaning that he is boss of around 450 people in total.

When asked if there is anyone with a similar role, he says: ‘Not really. It has aspects of running a general insurance company, but there are so many different interested parties in the Lloyd’s market. There are so many challenges – risk management, treasury, traditional financial control. Intellectually, it is a very interesting place to work.’

He also refers to the close relationship between the market and any disaster that happens anywhere in the world. ‘When you wake up in the morning and you listen to the radio and you hear about a hurricane and find out that it is in Belize not Miami, you know that will have a financial effect on this market,’ he says.

Rise in insurance premiums
For the future, Moss predicts that the general rise in insurance premiums, which was already happening before the events of 11 September, will be increased sharply by the attacks, as insurers and reinsurers struggle to remain profitable – or, as is the case for many – work towards regaining profitability.

He also admits disputes over insurance pay outs relating to the New York tragedy will continue for some years, although he emphasises Lloyd’s insurers have already started making pay outs. ‘History would suggest there will be a lot of litigation around some of the coverage issues, although we would prefer there wasn’t,’ he says.

Moss says he thinks that there will be disputes about who was responsible for security at particular airports, whether the security requirements of the government were strong enough, and over how many events the tragedy constituted for insurance purposes.

Guiding the market through these challenging times will undoubtedly provide Moss with many more of the intellectual challenges he enjoys.


Lloyd’s of London website

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