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Reform rumbles on at Lloyd's

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Lloyd's of London and the member companies of the International Underwriting Association expended great efforts this year to take up the challenge set them by the Financial Services Authority to achieve contract certainty by January 1, 2007. Market trade bodies were at the forefront of this drive.

In January, Andrew Kendrick, chief executive officer of ACE European Group in London took up the post of chairman of the Lloyd's Market Association, which represents managing agents at Lloyd's, succeeding Dane Douetil, CEO of Brit Insurance Holdings P.L.C., who continued to be heavily involved in the market's efforts to meet its contract certainty goals.

The so-called G6 group of companies—Amlin P.L.C., Beazley P.L.C., Catlin Group Ltd., Hiscox P.L.C., Kiln P.L.C. and Wellington Underwriting P.L.C.—was set up in January to "identify practical opportunities to streamline and improve Lloyd's market processes."

Headed by Sue Langley, chief operating officer of London-based Hiscox, the group called for greater efficiency in the market.

In January, Lloyd's unveiled a three-year strategic plan, aimed at helping the market retain corporate investors and maintain a strong, competitive position compared with other insurance and reinsurance centers.

The plan sets out Lloyd's strategy for being the "optimal platform" to attract and retain investment to support underwriting in the market.

In March, Lloyd's ended months of speculation when it appointed Richard Ward as its chief executive, to replace Nick Prettejohn who left the role at the start of the year.

Vision

Mr. Ward was formerly vice-chairman of London-based ICE Futures, formerly known as the International Petroleum Exchange, which became an electronic trading platform during his tenure.

In one of his first public addresses, Mr. Ward outlined his vision for the 300-year-old market—as a place where the traditional face-to-face trading for which the market is renowned is supported by technology and efficient business processes.

The Lloyd's market made headlines this autumn with the news that Equitas Ltd. had struck a deal with Warren Buffet, chairman of Berkshire Hathaway Inc. It is hoped that this will remove from Lloyd's the threat of liability for Equitas' longtail claims, should the runoff reinsurer fail.

Under the deal the runoff of the liabilities of Equitas Ltd., the runoff reinsurer for the pre-1993 longtail liabilities syndicates, will be transferred to Berkshire Hathaway unit National Indemnity Co.

If the deal receives regulatory approval, National Indemnity will reinsure all of Equitas' liabilities, provide up to a further $7 billion (€5.3 billion) of reinsurance cover to Equitas, and take on the current staff and operations of Equitas to conduct the runoff of its liabilities.

The second phase of the deal will see Equitas seek the approval of the High Court to transfer all liabilities of reinsured individual investors—known as names—into Equitas or a subsidiary of Berkshire Hathaway for all concerned.

Outlook

Rating agencies reacted positively to the move, saying the deal would remove a "drag" on Lloyd's rating.

In the wake of the announcement, Standard & Poor's Corp. revised its A- rating of Lloyd's to positive from stable, and said that the deal was likely to "remove any realistic potential for reserve inadequacy at Equitas Ltd. to undermine confidence in Lloyd's."

Lloyd's, which will make a contribution of about £90 million (€132.9 million) to National Indemnity as part of the transaction, described the deal as "a significant milestone" that will "close a chapter" in its history.

The Equitas deal is likely to spark greater investment into the market, experts noted.

And the market was vibrant during 2006 on the back of hard market conditions and strong results, experts said.

In 2006, there was an up-tick in activity with planned mergers and companies investing both within and outside the Lloyd's market.

Among other moves, Bermuda-based Catlin Group Ltd. announced its proposed acquisition of Welllington Underwriting P.L.C., a deal which would create Lloyd's largest agency.

And in late November, London-based Chaucer Holdings P.L.C. and ICAT Holdings L.L.C. announced the formation of syndicate 4242 to underwrite insurance for small and medium-sized companies in catastrophe-exposed regions of the United States.

Hiscox announced plans to redomicile to Bermuda, a trend that continued when Omega Underwriting Holdings P.L.C. said it would set up a holding company on the Atlantic island.

And this month, London-based Advent Capital Holdings P.L.C. announced plans to raise fresh capital and open a retrocessional reinsurer in Bermuda.