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Managing agents see start-ups and they see one thing: competition

The Lloyd’s contenders for 2019 are starting to line up. David Indge, a former Corporation insider and Acappella alumnus, is working with a US coverholder on a venture.

Securis is eyeing a full syndicate launch as the next chapter, with the book set to close on its special purpose arrangement (SPA) with Axis at year-end.

Jordanian insurer International General Insurance is also looking to follow in the footsteps of Probitas backer Saudi Re.

Even Cobalt – long caught in limbo – is eyeing 2019 as the year when it could finally get its underwriters installed in one of the boxes at One Lime Street.

There are other SPAs in the pipeline too.

We may have seen the last class of Bermudian (re)insurers, but every year seems to bring a new class of Lloyd’s players.

Emerging markets players looking for the licensing network and the specialty distribution; major corporates looking to fill out their presence; entrepreneurs looking to build businesses from the ground up – all coming to Lloyd’s.

And each of those types of business tend to provoke the same response from the incumbent market: hostility.

The existing managing agents see start-ups lining up and they see one thing: competition. Competition for their business and competition for their staff. And they see it in a marketplace that is being killed by excessive competition, with underlying returns running at close to zero after years of compound rate reductions.

Around 2011-12 the market incumbents had some success in closing the doors of Lloyd’s to new entrants, with a characteristically uncompromising speech from Stephen Catlin widely perceived as the catalyst for a never-acknowledged embargo on new launches.

Since then managing agents have kvetched and fulminated about the pipeline of start-ups – with Peter Scales’ Cathedral reboot Blenheim representing something of a high point of market indignation – but with little obvious result.

The start-up debate looks like just one of those frequent areas where Lloyd’s struggles to contain its own contradictions – or at least the multiple incompatible ways in which it is thought about.

The managing agents are essentially arguing that Lloyd’s is a club run for the benefit of its members. Broadening the membership dilutes the membership benefit and is pretty much unjustifiable if you are coming from within this paradigm.

The Corporation’s willingness to entertain new businesses represents the perspective of the franchise builder. Bringing in new members builds the size of the Lloyd’s franchise, helping it to ensure relevance and increase prominence.

It is this perspective that normally comes in for particularly vocal criticism from incumbents, which argue that franchise-building has more to do with ego than anything else.

These senior figures tend to argue that Lloyd’s should provide central services (licensing, the Central Fund) and get out of the way.

It can be hard to find common ground between these two different perspectives on Lloyd’s.

Perhaps the best hope of bridging the gap is to be found in the idea that Lloyd’s is a marketplace – which is not the same thing as saying it is just a collection of competing underwriting businesses.

Because a marketplace is not just its economic actors; it is also the infrastructure, regulation and culture within which those actors operate.

And if you see Lloyd’s in that way you then perhaps have the start of a framework within which you can balance the needs of the whole against the needs of its parts.

In certain circumstances, someone that believed in Lloyd’s as a market may argue that the needs of the whole required an influx of regenerating capital, or an injection of the entrepreneurial culture you only get with new staff-owned businesses.

But then at another time they might think the needs of the individual businesses to be shielded from increased competition should outweigh the imperative for the whole to grow.

Based on that logic it is hard to argue right now with 56 managing agents, 83 full syndicates, 13 SPAs and no true failures that what the market most needs is renewal via new entrants.

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