Insurance Post

Who owns agencies?

Following its infamous losses, Lloyd's has certainly felt a shift in the spread of its investors. Adrian Leonard investigates who owns what.

Back in the mid-1990s, when rates were rock hard and Lloyd's had just proved its tenacity, acquiring a managing agency looked an attractive investment. So appealing was the prospect that many investors - particularly those from the insurance sector - failed to conduct more than cursory due diligence on the properties they were buying.

A few years later, the relative share of risk carriers' ownership of Lloyd's, based on managed capacity, has fallen from 63% in 1998 to 56% in 2001 (see Table 1).

(Re)insurers that have withdrawn from Lloyd's include Unum, which last year pulled its backing from Duncanson & Holt; PXRe, which endured severe capital loadings after over-extending itself in 2000; and CGNU, which acquired the Marlborough managing agency to assume Commercial Union's marine book. CGNU later sold its agency to Berkshire Hathaway, although it still has a handful of majority shareholdings in Lloyd's agencies.

Mutual Marine Office (MMO), owned by listed US marine insurer NYMagic, has retained its exposure through a line on Cathedral Syndicate 2010, rather than through the ownership of MMO managing agency, which it established in 1998. Capital Re has withdrawn its support from RGB managing agency, although the reinsurer has been purchased by Ace, one of Lloyd's largest operators.

Scaling down

Other investors have scaled down their Lloyd's businesses. Bermudian reinsurer Stockton Re has slashed the size of Crowe, the managing agency it bought in 1999. Markel, which inherited the former Octavian syndicates when it acquired the nominally Bermudian insurer Terra Nova, has closed several syndicates. Likewise Trenwick has pared down significantly the former Archer managing agency, which it got through its acquisition of Chartwell Re.

St Paul is also set to reorganise its sprawling Lloyd's business. This includes Marketform, 90% owned by Unionamerica, which St Paul acquired with MMI; a significant share in Jago, also acquired with MMI; Cassidy Davis, which it garnered through US F&G; and Ashley Palmer and Gravett & Tilling, the managing agencies St Paul bought directly.

Meanwhile, Alleghany is resisting the closure of its agency and XL agency Brockbank has undergone a radical rethink of its active lines.

HIH, the notorious Australian insurer, has rationalised the syndicates at Cotesworth & Co., its managing agency subsidiary, after running all of its European business through a new syndicate, 1688. The HIH syndicates continue to write business, despite the bankruptcy of their parent and principal backer, which provided 90% of their capacity for 2001.

Fairfax Financial of Canada bought into Lloyd's indirectly when it acquired troubled US reinsurer Tig Re. That included Tig managing agency, launched in 1997 (and achieving a 128.4% combined ratio that year) and now called Newline Underwriting. It writes the continuing business of the closed Fairfax operation Odyssey Re London (formerly Tig's London office) and will be retained.

However, the Canadian (re)insurer has sold Kingsmead Underwriting to Advent Capital, which owns the highly successful BF Caudle Agencies, although the deal does not mark an exit. Fairfax has offered £110m ($152m) of credit to Advent to support underwriting until 2005 and has taken a 22% stake in the agency.

Despite the withdrawals, Lloyd's can boast that "62% of the capital backing is provided by major international insurers". Of the top 10 agencies, which between them manage about 48% of Lloyd's capacity for 2001, half are owned outright by insurance carriers, while the other five all have stock exchange listings.

New faces

Since the initial rush, new insurance investors include General Re and its parent Berkshire Hathaway, Gerling Global and Munich Re. (Re)insurance investors in Lloyd's now manage (rather than provide) about 56% of Lloyd's total capacity, based on publicly available information. Insurance companies whose sole underwriting is at Lloyd's have been excluded.

US (re)insurers own managing agencies controlling £2.28bn of Lloyd's total 2001 capacity and Bermudian (re)insurers £1.82bn.

Australians QBE and HIH manage slightly more than £1bn, including Limit, the largest managing agency at Lloyd's. UK insurers have £633m, much of it as minority shareholdings, including those of Brit Insurance Holdings.

Unfortunately the measures are flawed; Chubb's 27% of Hiscox, for example, has added a like portion of Hiscox's 2001 capacity to the total, even though Chubb exerts no influence over the deployment of that capacity.

Hiscox does not qualify as a UK insurer, even though it has business outside Lloyd's.

However, in the absence of more complete data - Lloyd's was unwilling or unable to detail agency ownerships or aligned capacities - it is impossible to calculate with certainty the insurance company capital backing Lloyd's.

Other European (re)insurers have £328m of capacity under management, including Swiss Re's 10% of Wellington, inherited through the Swiss giant's consolidation of the formerly-independent Bavarian Re, which is rumoured to have provided Wellington with a large qualifying quota share reinsurance treaty for 2001, allowing it to write more business than its stamp seems able to support. Gerling and Munich Re are included through their ownership of small agencies.

 TABLE 1: (RE)INSURERS' MANAGED CAPACITY*                                         2001                 1998 Location of                     Managed   Share of     Managed    Share of parent company                 capacity     market    capacity      market                                    (£m)        (%)        (£m)         (%) US (re)insurers                   2 279      20.60       2 320       24.89 Bermudian (re)insurers1           1 825      16.49       3 331       35.74 Australian (re)insurers           1 004       9.07          63        0.68 UK (re)insurers2                    633       5.73         102        1.10 Other European (re)insurers         328       2.97          71        0.77 Canadian (re)insurers               154       1.39           0           0 Total (re)insurance capacity      6 223      56.25       5 888       63.18 * Based on full or partial ownership of managing agencies. Omits some agencies launched after 1 January 2001.
1. Includes Trident-owned agencies, advised by Marsh.
2. Excludes Hiscox and Ockham.
Source: The author, Lloyd's data, other data.
TABLE 2: (RE)INSURERS THAT OWN AGENCIES - 2001 Managing agent Owner/strategic investors Capacity (£m) Ace Underwriting Ace Ltd 725 Aegis Aegis 100 Amlin Underwriting State Farm (13.2%); White Mountains (7.2%); Prudential (4.9%); Brit (3.1%) 163 Apollo Underwriting Munich Re 105 RF Bailey Safeco Corp. 72 Cathedral Underwriting MMO and PMA Re (est. 15%) 12 Catlin Underwriting Western General Insurance (67.6%) 153 Chartwell Trenwick Group 217 Chaucer Syndicates Brit Insurance Holdings (26.8%) 85 CNA Underwriting CNA Financial 35 Cotesworth & Co. HIH Casualty 168 Crowe Syndicates Stockton Re 115 Danish Re, Newmarket Trident II 208 Euclidian Underwriting Zurich Financial (70%) 85 Gerling at Lloyd's Gerling Global 85 Goshawk CGNU (11.8%) 15 Hiscox Syndicates Chubb Insurance (27%) 97 Jago St Paul Cos (Unionamerica)/ Aon (49%) 59 Kingsmead, BF Caudle Fairfax (22%) 54 RJ Kiln and Co Brit Insurance Holdings (17.8%) 62 Liberty Syndicates Liberty Mutual Group 222 Limit Underwriting QBE Group 836 Markel Syndicates Markel Group 270 Marketform St Paul Companies (90%) 18 Marlborough Berkshire Hathaway 191 Mander Thomas Cooper Navigators Insurance 66 DP Mann GeneralCologne Re 400 Newline Underwriting Fairfax 100 St Paul Syndicates St Paul Cos 502 SVB Syndicates Prudential (8.3%); CGNU (5.1%) 66 Wellington Bavarian Re (10.1%); Brit (8.5%) 98 Wren Syndicates Brit Insurance Holdings 315 XL Brockbank, Denham XL Capital 525 Total 6 223 Stakes 100% unless specified. Munich Re's share of Creechurch is unknown and has been excluded.
Sources: The author, Lloyd's data, Hemscott, AM Best, Moody's, agency annual reports.
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