In the long awaited update of his controversial 2002 speech to The Insurance Institute of London, Tony Markel, President and Chief Executive Officer of Markel Corporation, today presented his assessment of the progress that Lloyd’s has made in successfully addressing the issues he then raised.

Two years ago, while underlining Markel Corporation’s commitment to the Lloyd’s market,   Mr Markel said that he believed “Structural, fundamental, gut-wrenching change is going to be necessary for Lloyd’s to survive, let alone realise its full potential in the global economy” 

Speaking today at Lloyd’s, Mr Markel today reviewed progress so far and identified what still needs to be accomplished to assure the long term future and success of the marketplace. He said:

“There has been tremendous progress under the strong, focused leadership of Lord Levene, Nick Prettejohn, Roger Sellek and Rolf Tolle. We are encouraged by their direction and, in particular, the early signs of discipline being demanded by the Franchise Performance Board. Much has been accomplished but much remains to be done. And the toughest test is ahead of us. Any softening of the rate environment now would be unbelievably premature.”

Mr Markel identified a number of areas where good progress had been made in addressing concerns:

•  Wordings.
• He welcomed the use of LMP BRAT slip standards. Nonetheless he warned that, to be successful, it needed “true teeth to be put into the process through comprehensive regulatory oversight and appropriate stiff penalties”
• Expense of doing business at Lloyd’s.
  He congratulated Nick Prettejohn’s success in achieving reductions in operating expenses which, despite an increase in capacity, fell by 13 % from 1998 to 2002 in spite of a 46% increase in capacity from 1998 to 2004.
• Regulation
  He praised the formation, focus and determination of the Franchise Board. He commended its “laser-like initiative” to limit “the outrageously dangerous practice of reinsurance leverage” by requiring that at least 10% of any risk be retained and that qualifying quota share should be limited to no more than 10% of capacity. “The Board has sought to  rein the market back in from a growing brokerage mentality to its roots as a true risk bearer”, he said. He added “They have earned my unabashed admiration for taking this potentially unpopular decision.” He also commended the Board for guidance requiring that all multi-year policies have full, matching reinsurance.
• Delegated authorities
  He supported new regulations covering delegated underwriting but suggested that underwriters need more self-regulation.

However, Mr Markel saw many areas that still needed serious attention.

• Terms of Trade
  He was scornful in the market’s failure to collect insurance premiums when they were due.
• Reinsurance
  He again highlighted the danger of using LOD rather than full risk attaching reinsurance. “How can you price a piece of business when you don’t even know whether you are going to be able to buy reinsurance for the length of the exposure and, even if you can get it, you don’t know how much it is going to cost?”
• Catastrophe monitoring
  The regulator needs more information and a more comprehensive approach.
•  Claims administration
  “One of Lloyd’s weakest links lies in claims administration and reserving. Cumbersome, time-consuming processes and the heavy dependence on outsourcing have created a bureaucratic, inefficient process that results in questionable claims control and unacceptable delays in reserve establishment and claims payment.”    
• Service standards
  “ Service is abominable”.
• Pricing
  Mr Markel gave a warning to the market about being prepared to accept inadequate returns on its equity and so being prepared to underprice risks. “Don’t be prematurely and naively lulled into a false sense of security as a result of the early returns from 2002 and 2003. Continue to get adequate prices for your product and every insurer, broker and insured alike will benefit from the long term stability and continuity of the marketplace”

ENDS

For further information:
Tamara Cutting, Head of Marketing and Public Relations: 020 7953 6000
Michael Henman: 020 7087 8003 / 07740 038 930

Notes to Editors

1. The full text of Tony Markel’s 2002 speech is available at www.iilondon.co.uk/worddocs/afmarkel.doc  or at www.iilondon.co.uk  following the links through Lecture Scripts, to 2001/2002 Programme, to 8 January 2002
2. The full text of Tony Markel’s 2004 speech will be available at www.iilondon.co.uk
3. Pictures of Tony Markel are available from Tamara Cutting on 020 7953 6000