By Rasaad Jamie
Republished with the permission of Insurance Day.
Argo’s Mark Watson is one of a number of critics of the high cost of operating at Lloyd’s. But he also stresses the absolute importance of Lloyd’s, not only to Argo, but also to the global specialty lines insurance and reinsurance market. “Lloyd’s is a unique marketplace,” he says. “It brings together businesses that are looking to transfer risk from their own balance sheets to the balance sheets of the companies operating in the market. And those companies in the Lloyd’s market are also looking for capital to support their activities.”
Increasingly, he says, there is less difference between the international specialty business written by Argo through its non-Lloyd’s platform in Bermuda and the business written through Lloyd’s. “There is a lot of business that we originate outside Lloyd’s that we do so on behalf of our two syndicates at Lloyd’s because we prefer to use those capital sources rather than our own capital. That, of course, is a very good reason for us to be a part of Lloyd’s. But having said that, we also source and underwrite risks in London and that is a very expensive process for us.”
At the end of the day, Watson says, it will be a question of supply and demand. “Right now there is a fair amount of capacity, but if prices keep coming down, brokers’ commissions keep going up and the cost of compliance in the market keeps on rising, there is no way anybody can sit in London and wait for business to come to them and still expect to make a profit. The costs are just too high.”
Already, most of the growth in the group’s Lloyd’s business is coming from risks it originates outside London, he says. “And I don’t see that changing for us or for anyone else in the market who has access to other underwriting platforms. If you rewind the clock 10 or 15 years ago, companies like us were pretty beholden to business that came to us through the London market, but now a lot of the really good business is being originated in local markets.”
In terms of its international specialty business, Argo makes extensive use of the Lloyd’s underwriting platforms in markets such as Dubai, Singapore and Shanghai. Watson says Argo prefers, where possible, to be a part of Lloyd’s in those markets where Lloyd’s has built a presence.
“What is interesting about our presence in Dubai is that we actually started a branch office of our Bermuda company there years ago, before Lloyd’s set up a platform in Dubai. But, about 18 months ago, we rolled that business into the Lloyd’s platform in Dubai.”
The group still has authority to underwrite on behalf of the Bermuda company, but the majority of the business written by Argo in Dubai now is Lloyd’s-based. “The reality is most of our policyholders are agnostic about whether their policy is issued by a Bermuda company or whether it is issued by Lloyd’s. It is just whatever is most efficient for us,” he says.
Argo’s business in Singapore and Shanghai, however, is 100 percent Lloyd’s-based.