Why did a virtual syndicate choose London?
Erik Johnson, Deputy Active Underwriter of Victor Syndicate 2288 highlights the benefits of a virtual syndicate at Lloyd’s and describes how Asta’s support as third party managing agent minimises infrastructure needs and reduces operating costs for insurance start-ups. This article first appeared in the Insurance Institute of London Journal in May 2021 and has been re-produced here with their kind permission.
Victor Syndicate 2288 is a virtual syndicate, which means it is a Lloyd’s syndicate (think (re) insurer), but that it does not have a traditional ‘underwriting box’ in the Lloyd’s building, where brokers would have traditionally queued to see an underwriter. 2288 is the syndicate number, which all Lloyd’s syndicates have, with 22 representing Victor (the 22nd letter in the alphabet) and 88 representing two lucky eights signifying wealth and luck. By design, it does not have a large team of underwriters, claims experts, actuaries and management in London. In London, it is me and the active underwriter (think chief underwriting officer).
We are supported by a geographically dispersed Victor team with actuarial in Ottawa, Canada, exposure management in Boulder, Colorado, and reinsurance and finance from New York. Working collaboratively with subject matter experts, embedded in Victor but located around the world, enables Syndicate 2288 to cost-effectively leverage existing Victor capabilities and support local build-out of capabilities for the benefit of Syndicate 2288 and Victor overall.
The business originates through our Lloyd’s coverholders (think managing general underwriters/agencies) located locally. We currently write business from Canada, the United States, the United Kingdom and The Netherlands, and with Lloyd’s licences, we plan on expanding Syndicate 2288’s underwriting to support Victor coverholders in Germany, Italy and Australia. Victor specialises in high-volume, low-touch, SME business, which tends to be underwritten locally using technology, and this rarely finds its way into the Lloyd’s market. Victor Syndicate 2288 enables capital to access local SME business in a cost-effective manner, while benefiting from Victor’s local underwriting and expertise that is distributed around the world through other Victor Group businesses.
Victor Syndicate 2288 chose London because a virtual insurer of this scale and global reach could only be possible through Lloyd’s, with access to:
Licences – Lloyd’s as a market benefits from a large network of global licences, enabling syndicates to trade from London or locally in markets, without the need to establish their own locally regulated and licenced entities. This model avoids Victor having to seek and manage its own insurance licences in the seven countries where Syndicate 2288 currently sources business, as well as the ability to establish new Victor coverholders in new markets to support profitable growth. Rating – Lloyd’s is currently rated “A+” by Standard & Poor’s and “A” by AM Best, providing confidence to policyholders of Lloyd’s and its syndicates’ ability to pay claims. A rated platform with solid capital base will provide Victor coverholders and their SME insureds access to high-quality capacity. Lloyd’s rating and reputation for promptly paying all valid claims provides credibility to a new venture, such as Syndicate 2288, when Victor coverholders market our capacity to local clients and insureds. Third-party managing agent – Through an efficient partnership, Victor can access third-party management services from Asta as a Lloyd’s managing agent. All Lloyd’s syndicates are required to have a managing agent that provides governance, oversight and other services to a syndicate. Many large integrated insurers might own a managing agent and syndicate – an integrated Lloyd’s operation. Syndicate 2288 avoids costly infrastructure that already exists within the Victor organisation by partnering with Asta, a managing agent that provides managing agency services to multiple syndicates. This frees Syndicate 2288 staff to focus on managing the business, while Asta provides back and middle office, underwriting oversight, actuarial, finance, risk, compliance and advisory support."While Covid accelerated our virtual dynamic even more than we had planned, it further proves that virtual syndicates can work"
Lloyd’s - the natural choice
These benefits of Lloyd’s, supported by the Lloyd’s market’s ambitious ‘Future@ Lloyd’s’ programme, made Lloyd’s and London the natural place to start a new insurance business. When I look at the focus on making delegated authority underwriting more efficient, better use of data and making the entry and exit of capital that support syndicates more efficient, these are all things that will empower virtual syndicates, such as Syndicate 2288, to be more efficient, for instance:
Delegated underwriting – With Syndicate 2288 only writing business through Victor coverholders, we are keenly interested in ways to streamline this delegated underwriting channel. Lloyd’s investment in digital contracts, e-placement systems, data validation and flow, as well as claims, are all initiatives that could benefit a virtual syndicate. Data and enrichment – Investing in making the collection, submission and reporting of coverholder data means that Syndicate 2288 should more efficiently use data provided by Victor coverholders to create business intelligence reports. Enabling the use of third-party data enrichment (e.g., geo- location data, public corporate registry data) and automatic data validation will make regulatory reporting easier, but most importantly, provide for better management information to support good underwriting decisions, pricing, reserving and portfolio optimisation. Flexible capital – Lloyd’s recent work to make the use of insurance linked securities within syndicate capital structures, along with the new UK-based Lloyd’s protected cell company London Bridge Risk PCC Ltd, make London competitive against other domiciles such as Bermuda and Guernsey in terms of attracting capital to support underwriting risk. For a third-party capital syndicate such as Victor 2288, ensuring that it is cost and tax efficient for us to attract trade and alternative capital to support our underwriting is key. Coverholder experience – Syndicate 2288 writes relatively small premium, high-volume business, and the kinds of business that Victor coverholders can often find local capacity to support. Lloyd’s investment in making the coverholder experience efficient, digital, and less Lloyd’s specific, will help make Victor Syndicate 2288 a more attractive capacity partner. Being able to operate as a coverholder of 2288 in a similar operating model to how Victor Group coverholders operate as agents of other capacity, means less disruption to standard approaches and less cost. When combining these investments by Lloyd’s with London’s strong network of service providers, concentration of underwriting and insurance talent, English language, flight connections, and common law legal system, Lloyd’s and London came out tops when Victor was looking to establish a risk bearing entity.While there are many benefits to operating a Lloyd’s syndicate based in London, there are still many ways that the Lloyd’s and UK regulatory and business environments could be enhanced to make it easier for me to do my job and generate profits for our backers. Top of mind would be for Lloyd’s to consider a three-year business plan approval process. In this model, syndicates would submit a three-year business and capital plan, which would enable syndicates to better plan, present more credible longer-term plans to capital providers, and provide syndicates and coverholders with more certainty of capital for a longer period. Moves by Lloyd’s to tier the annual business process from light-touch to high-touch are starting to move in this direction. Lloyd’s strategy, ‘Future@Lloyd’s’, will tackle these and many other modernisation initiatives. Its strategy is to create the world’s most advanced insurance marketplace.
There are always ways for things to improve. Nevertheless, for a start-up insurer, picking London and Lloyd’s was easy. While Covid accelerated our virtual dynamic even more than we had planned, it further proves that virtual syndicates can work. Would it have been possible anywhere else? I don’t think so.
ERIK JOHNSON, BComm, MSc, ACII
Chartered Insurer – Deputy Active Underwriter, Syndicate 2288; Local Forum Officer; IIL ExCo
May 2021