Lloyd’s must avoid Solvency II complacency: Savage
The Lloyd’s Market has made good progress in preparing for Solvency II. But despite some £400 million having been invested so far, more work is needed to ensure it secures model approval, believes Luke Savage, director of finance and operations.
Savage is stepping down from his role after ten years. In a Lloyd’s briefing in which he reflects on a decade of change in the market, Savage said that he is extremely proud of his role in leading Lloyd’s preparations for Solvency II although he also notes that it has been very much a team effort.
He said the unique stricture of Lloyd’s meant that attempting to prepare for Solvency II has been a huge challenge for the market. But he believes the finishing line is now in sight.
“The biggest challenge I’ve faced is preparation for Solvency II. Lloyd’s unique structure means we have never easily fitted into the framework that works for the rest of the industry, so we have had to work constantly since 2006 to make sure Solvency II implementation won’t disadvantage us,” Savage said.
“But I think I’m leaving it in pretty good shape. It has been a tremendous effort involving dozens of people in the corporation and hundreds across the market, which has spent in total between £300-400 million in its preparations. There is plenty more to do to make sure Lloyd’s does secure its model approval, but the market has pulled together so far, and as long as there is no complacency we will get there.”
Savage also said he believes the market is in much better financial shape compared with ten years ago, thanks to some significant deals the market has completed.
“We are better off in so many ways,” he said. “We’ve made many moves that have improved our position – one was our foray into the debt markets not long after I joined and again in 2007, which bolstered the central fund significantly; another is the Berkshire Hathaway deal, which extinguished the residual exposures to Equitas and cleared all the open years that at one point had liabilities from the likes of Enron, Worldcom and 9/11 that exceeded the Equitas liabilities.
“It is gratifying to see how the improvements in both financial strength and the way we oversee the market have been recognised by the ratings agencies. Fitch recently upgraded us to AA-. This is the second upgrade in my time at Lloyd's – a period in which most of our peers have at best stayed still and most have been downgraded. For the last ten years we have bucked the industry trend, and the upgrades prove we’ve been getting something right.”