Thursday, 5 April 2012
Job done-Jose Ribeiro
Jose Ribeiro, Director International Markets at Lloyd’s, leaves the corporation in May after a very busy term in which he has overseen a significant expansion in the market’s footprint. Adrian Ladbury asked why Lloyd’s felt that it needed a more physical presence on the ground in China, Brazil and Singapore, how it benefits the underwriters and customers and the key role of brokers in the Lloyd’s system?
Jose Ribeiro, Director International Markets at Lloyd’s
Adrian Ladbury: Why have you decided to leave Lloyd’s?
Jose Ribeiro: I always said when I joined that I wanted to do the job for about five years. When you join Lloyd’s you leave the front line and if you stay doing a job at the corporation for too long it is more difficult to get back into the market. So I said that I would do the job for 4–5 years and then go back to the market. This happened naturally and so I am leaving in May. I am moving to Brazil where my wife and I lived in 1994 to 2001 and know very well. I originally went there with AIG from New York to Rio to take on the role of CEO of AIG Brazil. I was also CEO of Willis Latin America from 2002 to 2007.
AL: What was the plan for international expansion when you arrived at Lloyd’s?
JR: The plan was based on two challenges when I joined. First Richard Ward, then recently appointed CEO of Lloyd’s, wanted to ensure that Lloyd’s had proper control of the network of offices and that they were properly managed and the reporting lines were effective so that we could improve what we had. We also made changes to management and the way the offices were run. Second, Lord Levene, Chairman, was pretty much driving the international agenda and it was quite challenging. We had just opened an office in China in April of 2007 and so there was a lot to do. We had to implement a model that allowed syndicates to operate in China in many ways. The whole concept of the corporation of Lloyd’s is to make life easier for syndicates to access markets globally and the partners are the brokers. So it needs to be a flexible model that adapts to different circumstances in different territories. If a broker or syndicate wants to simply bring the business back to London that is fine. But if they want to place the risk in that country then that needs to be possible.
AL: How does the Chinese operation actually work and make it possible for Lloyd’s underwriters to access Chinese business?
JR: The majority of Chinese business is placed in London. But syndicates can write the business locally and retrocede back to London if they want which means that the business can be placed in Chinese RMB not Sterling. There are currently six syndicates, and we expect eight by year-end, that have a physical presence on the ground and can write business through Lloyd’s China with a degree of autonomy depending upon what the managing agency decides to do. But only 80% can be reinsured into Lloyd’s, the other 20% has to be placed with another reinsurer. So the system is now fully working in China. Basically an insurance company can write insurance and reinsurance business and benefit from all the services on a turnkey basis and use the minimum capital in London. This is a very efficient system and works in a similar way to the cover-holder model. So it is very capital efficient.
AL: Is your model the same in all of the markets in which you have set up a formal operation? How does it work in Singapore for example?
JR: Singapore is a different model as each managing agency that operates there is a service company. The challenge in Singapore over the last five years has been to make sure the model is robust enough to tick all the boxes in terms of Lloyd’s underwriting standards, our franchise standards. It is essential that we ensure that if brokers decided to place risks in Singapore rather than London that it is a consistent approach and level of service to the broker. Ken Chaplin, Head of Claims, is now putting together a structure to make sure that Singapore is stronger and working closely with Tom Boult, Franchise Performance Director, to do so. More business is coming to this marketplace and I would not be surprised at all if the premium level written in Singapore was to reach $1bn before long. But the challenge remains the need for proper performance oversight at the same time because the market is so soft and results are not so good currently. It will improve cyclically of course but you need to make sure you have the talent and discipline on the ground so that top line growth is followed over time by profits.
AL: And what about Brazil? You recently opened an office there. How does that work?
JR: The Brazilian operation is even easier to explain. The capital and controls in London are the same as in Brazil. Because of the way the license is structured there are business development people on the ground. The risks are brokered into London as the people on the ground are not underwriters but business development people that deal with Brazilian brokers and a proper audit trail has to be shown to confirm this. Therefore in Brazil we leverage on the strength of the Lloyd’s market, underwriting skills, efficiency of the capital and strong regulatory environment. This enables us to penetrate markets like Brazil across the globe. We can offer service on the ground and underwriting in many cases but maintain the proper oversight and ensure that the business develops in line with business plans that have to be authorised by the corporation of Lloyd’s.
AL: Are the brokers happy with the way this system works and the level of service, flexibility and innovation offered by Lloyd’s for their corporate risks in general?
JR: It is always impossible to please all of the people all of the time but I think it is fair to say that we have provided the brokers with more choice than ever before and put in place a system that gives access to local and regional brokers. It is not about planting a flag in every country. For example in Europe, Australia, New Zealand, South Africa and Hong Kong the cover-holder model works very well. The managing agency is the service company and the capital is in London. Some people may worry that brokers are issuing policies and paying claims but remember that the capital backing the risk is in London and so is secure. So it’s horses for courses really as we look for the best model for Lloyd’s to work in various territories in a very pragmatic way. This approach is a true enabler for all involved and is based at the centre on the very simple question of: ‘What can I do to make it easier for syndicates and managing agencies to write better business and be selective?’”
AL: How does Lloyd’s prioritise which markets to focus on and agree the best methods?
JR: Not all initiatives are supported by all agencies at Lloyd’s but there is a clear process and framework and every time we make a decision it is agreed with the Lloyd’s Market Association (LMA) which represents the managing agents. There are a number of key steps that we take before we identify and expand into a market. This will often involve efforts to negotiate better license agreements. When I joined it was not really clear how decisions were made to me. You can be sure that there will never be 100% support and ideas will be challenged. This is healthy and why the Lloyd’s market works. This is also why we have to go through a formal process and ensure that sufficient discussion has been held before taking action. And at the end of the day the final decision is taken by the Franchise Board on which the managing agents are fully represented.
AL: What are the biggest challenges that you leave for your successor?
JR: There are a number of projects underway at Lloyd’s currently focused on modernisation and market reform. Expansion is not necessarily the number one priority but rather mastering technology which has to go to the next level for the market and, by that, allow even easier and more efficient access for the brokers. Technological solutions will not replace the face to face contact which makes Lloyd’s so different. There are some areas that simply cannot be done electronically. But this is very important and can help the managing agents to enjoy even wider and better access to worldwide business.
AL: Is Lloyd’s really capable of competing with the big international industrial insurers to offer global programmes for customers? You have the reach but do you have the capability to underwrite and properly service such complex programmes? Is this one of the reasons why advances in technology are so important because they could enable this kind of business to be transacted more easily at Lloyd’s?
JR: Even without the new technology we can deliver global programmes because the best way to deliver global programmes is via brokers. Every global programme or set of risks, whether they are based in one place or a variety, is required by regulators to have a fronting policy. If you have an operation that can offer a local policy, back to back across all the territories that are covered, then that is the best fronting insurer possible. The coverage does not have to be provided by one big insurer. But the broker can facilitate the centralisation of the programme and organise the services needed on the ground locally so that the client or their subsidiary can deal directly with a local service provider organised from the centre. It can be a very flexible system and in this sense the broker is a strategic asset. The coverage may be reinsured or, depending on the regulations, placed with offices locally. Without the broker though this does not flow and can’t work. Sure there are some places in the world where we have no office but in that case the broker manages the partnership.
The cost of insurance in the Middle East and North African (MENA) region remains low driven by high capacity from both local and international markets and as a result profitability is low. The market still promises huge long-term potential and tempting short-term growth rates above gross domestic product levels which themselves far outstrip rates in more mature economies such as Europe and the US.