Lloyd’s syndicate structure benefits from desire to spread counterparty risk: Ironshore Inc. chairman

Lloyd’s of London is a reaping the rewards of a market trend to spread counterparty risk in the wake of the 2008-09 financial crisis, Ironshore chairman Ron Sandler said in an Oct. 15 speech in Toronto.
“Risk managers and brokers are now more sensitized to counterparty risk,” Sandler said. “[They are] spreading counterparty risk through syndication, particularly in cat classes and particularly in reinsurance. The credit crunch is one factor.”
Sandler and Ironshore Inc. CEO Kevin Kelley each noted Lloyd’s financial performance weathered the effects of the global market meltdown, even as competitors were losing market share during the same period.
The market reported a record 29.3% return on equity (ROE) in 2007. And even during the market crisis in 2008, its ROE stood at 13.7%, according to Fitch Ratings.
Lloyd’s combined ratio has never been higher than 91% between 2006 and 2008. Also, Sandler noted, Lloyd’s market capacity in 2010 grew to £23 billion.
Lloyd’s operating results were achieved in part because of the attractiveness of its syndicate structure, Sandler said.
“The perception of syndication…serving to spread counterparty risk inevitably” resulted in business being placed with Lloyds’ syndicate structure, Sandler said.
The syndicate structure does have potential dilemmas associated with it, however.
“There is increased complexity,” Sandler said. “In addition, there is the need for multiple parties to come together over such things as terms and conditions, and most significantly claims handling.”