After years of speculation and anticipation, Lloyd’s is finally launching its Middle East platform in Dubai this March. We speak to some of the managing agents as well as Lloyd’s itself to get a sense of what lies ahead.
With a Country Manager appointed and seven managing agents as a start, all eyes are on the Lloyd’s Middle East platform when it opens in Dubai this month.
The move is part of Lloyd’s Vision 2025 plan, which involves increasing the business from emerging markets, as well as attracting both financial and intellectual capital into the market. “Lloyd’s has recognised that it cannot continue to rely solely on its traditional, established markets if it is to continue to grow and compete effectively in this changing world,” said Mr Cameron Murray, Head of UK, Ireland, Middle East & Africa, announcing the decision last year.
“If we are to be the global centre for specialist insurance and reinsurance, we have to be globally diverse: better represented in the high-growth, developing economies and, conversely, having those economies better represented within the Lloyd’s market,” he added.
Mr Murray said Lloyd’s goal for the office in the Dubai International Financial Centre (DIFC) is two-fold: to deliver practical benefits for Lloyd’s businesses on the ground in Dubai, while promoting the brand and expertise more generally across the region and helping to develop Lloyd’s coverholder and broker-driven business destined for London.
The background
Lloyd’s decision comes after years of speculation and anticipation, with reports of a regional presence going as far back as 2008.
In 2010 however, with the financial crisis affecting the region, plans for the office were put on hold. “We are still assessing the situation in the region. We still have some concern as to what’s going on there, particularly in some territories. At this stage, we have no plans to have a presence from the ground,” said Mr Jose Ribeiro, then the Director of International Markets told MEIR.
Lloyd’s had already been writing a large book of business from Middle Eastern markets in London, mainly in the energy sector. A fair amount of Middle East business was going to Singapore platform. But compared to its overall portfolio, the size of business from the region remained very small, at less than 4% or about US$350 million in 2009.
The position on a regional presence remained mostly unchanged in 2012, when in an interview at Monte Carlo, Lloyd’s Chairman John Nelson told MEIR: “I do not foresee any significant change in our strategy in the near term, nor is there a need to establish a hub. The Middle East is a promising market and, given its proximity to London, we are serving it sufficiently.”
The opportunities today
In February 2014, senior Lloyd’s executives made the surprise announcement of its plan for the DIFC office at a seminar in Dubai.
Speaking to MEIR recently, Mr Murray noted that while much has changed in the last three years, what has not changed is Lloyd’s desire to write more Middle East business. “It is a vitally important region, controlling around 50% of the world’s crude oil and natural gas, and attracting huge inward investment to support a raft of infrastructure projects. And yet insurance penetration across the region is just 1.5%. So there’s clearly scope for Lloyd’s to do more,” he said.
Lloyd’s wrote $1 billion in premium from the entire MENA region in 2012, with around half of that coming from the GCC countries.
He added: “In the last few years, Dubai has also become the undisputed reinsurance hub for the region, attracting business from the GCC and wider Middle East countries of course, but also North Africa and further south from Sub-Saharan Africa as well as Central Asia and the Indian Sub-continent. Lloyd’s businesses have recognised this trend and have identified opportunities to provide value-add products in niche areas. Lloyd’s office in the DIFC can provide those businesses with a cost-effective platform and a strong brand from which to market and underwrite their products.
“Finally, significant amounts of business are placed locally in the region. This business does not make its way through to London and it would be complacent to assume that this will change. So Lloyd’s syndicates setting up in the DIFC can develop opportunities to access this business.”
As for the choice of the DIFC, Mr Murray explained that besides the presence of major reinsurers and regional broking houses, the Centre’s “predictable and transparent regulatory framework, under the auspices of the Dubai Financial Services Authority (DFSA), has also been an important factor and we have also received great support from the DIFC Authority.
“But above all, walking around the DIFC and seeing business being transacted face to face in the coffee shops around the Gate Building, you get a real sense of a thriving business community that is ready-made for the Lloyd’s market. I think we will do well there.”
Priorities for the platform
The first priority for the Middle East platform, said Mr Murray, is “to bed down the new operation. We have a fine team on the ground led by Mark Cooper who has considerable experience of the region and has worked closely with the managing agents joining the platform to make their journey to date a smooth one”.
“We will also continue to work closely with the DFSA over the coming months to finalise the long-term regulatory arrangements for Lloyd’s Dubai. It will be important for both sides that the framework put in place is robust, practical and durable.
“And of course, we will be looking to promote the platform and the Lloyd’s brand generally across the region through a programme of outreach and events.”
Expectations are high
Clearly, expectations for the platform are high and comparisons will inevitably be made with Lloyd’s Asia based in Singapore, which started in 1999 and today has 18 service companies.
Talbot Underwriting was one of the first DIFC Lloyd’s coverholders to agree to co-locate with Lloyd’s in Dubai. Mr James Skinner, Active Underwriter said: “We have a good team of underwriters in Singapore and are in the process of doing the same in the Middle East – we want to offer the same level of service and capability in the DIFC as we do in Singapore. There are some differences between the two markets as Singapore is predominantly a direct business while in the DIFC we have a reinsurance licence, so there’s a need for us to align with partners in writing the business.”
He added: “We’ve established ourselves and we need more brokers to place business in the DIFC. Many are still placing the business in London. With added capabilities in Lloyd’s, we expect that more will place the business directly in the DIFC.”
Markel International was also among the first to announce its participation in the Dubai platform, having been involved in the Singapore platform since 2007. “It has been a great experience for us, so we quickly saw the attractions of the platform that Lloyd’s proposed in Dubai,” said Mr Leroy Almeida, Senior Underwriter, Trade Credit, who also heads Markel’s Dubai office.
He elaborated: “Singapore showed us that local markets really do generate business from their region, which remains in that region and does not find its way to London. The local distribution architecture is important in this. In Dubai, not only do you have a strong and established presence of the major international brokers, there is also a vibrant local broking community which has access to clients with a different set of profiles to those looked after by the big brokers. If you are not on the ground, you wouldn’t get to know that local broking community.
“It’s too early to say how the market is going to develop, but the Lloyd’s brand has real value which we think will be important in growing business in the region.”
The subscription market
One of the reasons for Lloyd’s success in Singapore, said Mr Kent Chaplin, Managing Director of Lloyd’s Asia, is the concept of the subscription market. “Singapore is one of the first overseas operations to identify the value of writing on a subscription basis and we’re very supportive of it.”
In the Middle East, the subscription market is just starting to take off. “Subscription capacity in Dubai is starting to grow and we think that this offers insureds some major attractions in terms of scale, flexibility and continuity of cover,” said Mr Almeida of Markel.
Mr Matthew Warren, CEO of Talbot Underwriting (MENA), also recognises the benefits. “Having worked in the London market for many years, I have seen that there are substantial benefits to the subscription market. Brokers in the Middle East are also embracing the concept, although some others are not so keen. The entry of Lloyd’s, as well as greater sophistication among local carriers and increasing regulatory requirements, should raise the bar and encourage a move towards the subscription market in the Middle East.”
Mr Murray said that in the short term, the managing agents setting up on the Dubai platform “are generally focussing on a limited number of niche lines of business. But as they expand over time, both in terms of line size and product range, then yes, I would hope to see a subscription market develop on Lloyd’s Dubai platform, as it has done successfully in Singapore”.
Regulatory challenge
One bugbear for Lloyd’s will be how to sort out the regulatory issues posed by the DFSA’s framework which does not recognise the legal structure of Lloyd’s. There are two licences for an insurance company planning to operate in the DIFC: a Category 4 licence, which covers insurance intermediation and insurance management services, and a PIN licence, which deals with risk-carrying activities.
“Lloyd’s sophisticated arrangement does not lend itself to clear-cut classifications and does not fit within either of the above groups of acitivities,” said lawyers Bin Shabib & Associates (BSA) in an article last year. “It is not certain that either of the current licence categories are suitable for Lloyd’s to be able to carry out the full extent of its operations, and the DFSA may thus have to create a third category in order to accommodate Lloyd’s unique structure.”
According to Mr Murray, in the short term, managing agents on the platform will be regulated directly by the DFSA as Category 4 intermediaries and insurance managers. “Lloyd’s is discussing with the DFSA a longer term regulatory framework for the operation,” he said.
Talbot Underwriting (MENA) is currently licensed by the DFSA as a Category 4 firm. “By moving to the Lloyd’s platform, we will have to come under a new set of rules. We are adopting a wait-and-see approach and trust that there will be controls in place to ensure the highest possible standards,” said Mr Warren.
The next stage
Lloyd’s is scheduled to hold its Dubai launch party on 11 March. Will the market live up to expectations after the hype is over? Much will depend on the participating insurers themselves as well as how the regulatory and macroeconomic environment plays out. For now, the entrance of Lloyd’s has cast the spotlight on the DIFC in particular and the Middle East in general, and looks set to be a game changer for the region’s insurance industry.