Note by Lloyd's
LLOYD'S ACTS AND FINANCIAL SERVICES AND MARKETS
Lloyd's is a large, successful and uniquely
British institution. It is the heart of the London Insurance market,
attracting insurance and reinsurance business to London from Europe
and around the world. Lloyd's plays a significant role in what
makes "the City" in particular, and London more generally,
a centre for international finance. The London Market is the world's
largest international market with net premium income of £9.6
billion in 1997 and is the largest global centre for reinsurance.
Lloyd's writes over half of the London Market MAT business (marine,
aviation and transport) and about one-third of the London Market
non-marine treaty business. Lloyd's net premium income excluding
its UK domestic business in 1997 was approximately £6 billion.
Lloyd's contributes to both the City and "UK
plc" in a number of ways. First, the market it operates generates
employment directly via its underwriting and broking businesses.
It is also responsible for considerable employment in the many
associated businesses, such as other insurance brokers, legal
firms, claims adjusting and surveying firms, investment managers
and accountants, which rely directly on Lloyd's. In addition Lloyd's
has a long standing commitment to the people of London, where
our Community Programmes have been assisting some of the capital's
poorest boroughs for several years.
Financially Lloyd's remains a major global player.
Over the most recent three years reported, Lloyd's has produced
a cumulative profit of some £2.8 billion, largely from overseas
Since the market's reconstruction in 1996, there
has been a transformation at Lloyd's. The global economic environment
has changed, and so has Lloyd's. The market has attracted investment
from a large number of international interests, most of whom are
significant forces within the insurance industry. With the arrival
of new capital the market has a potentially exciting future which
could substantially benefit the UK in terms of financial returns
and employment. Provided it is able to adapt and grow, then Lloyd's
will continue to play a major role.
Such developments have occurred against the
backdrop of enhanced global competition. The booming market in
Bermuda, and the industry giants created by the rash of mergers
both in Europe and the US, have reshaped the insurance industry.
A strong Lloyd's, at the centre of the London Market, is essential
if the UK is to respond effectively to the challenges to its position
as the world leader.
Over the most recent five years, the business
underwritten by Lloyd's has declined while our main competitors
have achieved significant growth. To fight to regain lost market
share, Lloyd's needs the freedom to reform its distribution arrangements
and sufficient structural flexibility to create new alliances
and new approaches to customers' problems. Efficient and effective
regulation has a part to play in this.
The 1982 Lloyd's Act is the essential basis
of Lloyd's franchise. But it contains some rigid rules designed
for a world that has since changed a great deal. As the political
world has changed considerably since 1982, so too has the financial
world. Enshrined in the Act is the requirement that Lloyd's Brokers
should be the market's exclusive distribution arm. Ironically
the Act also contains provisions prohibiting the most natural
form of vertical integration, which is available to Lloyd's competitors.
Agency relationships, an area of significant difficulty as the
market moves towards streamlined structures that combine capital
and management, are also set in stone in the Act.
The Lloyd's Acts were set up through private
legislation, which follows a very particular and cumbersome route
through Parliament. Amending these Acts takes considerable time
and resource, both for the market and for legislators. With a
background of rapid change in financial markets, what is needed
is a more efficient vehicle to adapt regulationand one
that reflects equal political accountability.
Lloyd's is not seeking such change in order
to give it an unfair advantage; rather it is seeking the opportunity
to compete more effectively on a level playing field.
A fuller note detailing particular areas of
the 1982 Act of concern to Lloyd's is attached for your information
A short provision inserted in the Financial
Services and Markets Bill would provide a practical route to the
necessary flexibility. This would create an order making power,
which would enable the regulatory aspects of the Lloyd's Acts
to be amended as judged necessary by the Treasury, the FSA and
Lloyd's. Such amendments would have to be considered by Parliament
through the Statutory Instruments procedure.
The ability to amend these outdated rules will
benefit the market commercially, allowing it to continue to compete
effectively internationally. More importantly it will also reflect
the Financial Services Authority's current approach to financial
market regulation, which is seeking the flexibility to anticipate
future developments in the sector. The FSA agrees with Lloyd's
that the legislation should seek to do the same.