XoL Trade Credit Insurance at Lloyds
Claire Davenport, Trade Credit Underwriter, Sompo Canopius
The ‘CR’ risk code has come with many different perceptions within Lloyd’s. Loss ratio statistics
within Lloyd’s exceed those of the private market, naturally reflecting accumulations of risk on single
obligors across many different syndicates. Credit risk underwriting is traditionally absorbed within
the Political Risks team with single obligors and longer tenors being the primary focus. It may seem
surprising, therefore, that a prominent Lloyd’s syndicate such as Canopius would invest in a Trade
Credit team and consider it a key part of its overall business strategy.
Experience is vital. The newly formed Trade Credit team at Canopius is made up of highly regarded Trade Credit underwriters with more than 100 years of Trade Credit experience in the market, focusing primarily on Excess of Loss (XoL) credit insurance and short-term single risks and with particular expertise in securitization and supply-chain finance.
In addition, Lloyd’s provides an excellent platform on which XoL Trade Credit insurance can thrive, given its ratings strength and multinational presence, which are essential in underwriting this class of business. Lloyd’s differs from conventional insurance companies in that it is a marketplace, with a three-tier chain of security behind it, including the Central Fund that secures all syndicates’ policies. Central market services like Xchanging provide some of the market’s infrastructure, which makes the process much more straightforward for risks shared between multiple syndicates and companies.
Experience is vital. The newly formed Trade Credit team at Canopius is made up of highly regarded Trade Credit underwriters with more than 100 years of Trade Credit experience in the market, focusing primarily on Excess of Loss (XoL) credit insurance and short-term single risks and with particular expertise in securitization and supply-chain finance.
In addition, Lloyd’s provides an excellent platform on which XoL Trade Credit insurance can thrive, given its ratings strength and multinational presence, which are essential in underwriting this class of business. Lloyd’s differs from conventional insurance companies in that it is a marketplace, with a three-tier chain of security behind it, including the Central Fund that secures all syndicates’ policies. Central market services like Xchanging provide some of the market’s infrastructure, which makes the process much more straightforward for risks shared between multiple syndicates and companies.
Lloyd’s centrally is keen to develop new classes of insurance, and XoL Trade Credit is a good
example. However, it has required some changes of approach. Adaptation and change in mind-set
from both Lloyd’s and our traditional intermediaries are essential to ensure that existing
preconceptions are dispelled.
Trade Credit portfolio business is not to be found traditionally in the Lloyd’s Underwriting Room, sitting patiently at the box. XoL business is long-term business that is highly relationship based, involving close due diligence of the client, in-depth knowledge of complex territories and a high degree of cooperation with brokers throughout the lifetime of the policy period. The business model of the product is based on collaboration at credit management level, client autonomy through high discretionary limits and certainty of coverage through the non-cancellable limits. The risk share element provides for a low claims environment, providing catastrophic cover.
At Lloyd’s level, individual syndicate business plans and line sizes must be approved, which means a strong case for XoL Trade Credit has been made and it is now our responsibility to ensure the internal reputation of the class is upheld. Once the business plan is approved, underwriters are fully empowered with authority to make decisions quickly and with minimum referrals. The unique combination of operating in a medium-sized business within a multinational organisation means that at syndicate level, you are never more than two steps away from a decision maker.
Outside of syndicate level, Lloyd’s offers many resources that are useful to underwriters. Knowledge- sharing within Lloyd’s includes a Wording database (Lloyd’s Wording Repository), so one can use appropriate Lloyd’s clauses such as sanctions clauses. The Lloyd’s Market Association operates a training institution called the LMA Academy, which helps by fostering a high-level collaborative approach to innovation and training. Working groups can be formed via the LMA in order for underwriters to confront communal issues together via the Lloyd’s platform. At the moment the LMA is carrying out vital work on the preservation of insurance as a source of capital relief for banks with market leaders grouping together to interact with bank regulators in the context of Basel III discussions. Brexit panels have also been formed in order to confront any issues that may arise as negotiations evolve. All syndicates have one-touch access to all of Lloyd’s international licenses, which is another great advantage for the market and its customers. For example, access to Lloyd’s paper out of Brussels will be essential once Brexit becomes a reality.
Lloyd’s has a unique business structure in the market; however access does not have to change. Intermediaries can now access Lloyd’s syndicates directly without becoming Lloyd’s brokers, via a bilateral TOBA with Canopius.
XoL Trade Credit has been around for over 30 years, but was written by only a handful of companies. Now it is available to all through Lloyd’s. You may not find us at the box, but our boutique offering provides experience and flexibility to fit the client’s needs and willingness to write complex and specialist business via the strength of the Lloyd’s platform. XoL trade credit has found a new home in Lloyd’s and Lloyd’s is now a new market for our brokers.
A note on the future: As the rest of the market pursues consolidation through acquisition, Canopius is placing a vote of confidence in itself by pursuing the second MBO of its history. Capitalising on the unique nature of its offering and strategy, on September 1, it announced a private equity backed management buyout. The deal will close in Q1 2018 and will re-establish Canopius as one of very few independent operators at Lloyd’s, placing a focus on underwriting expertise, strength and global reach.
Trade Credit portfolio business is not to be found traditionally in the Lloyd’s Underwriting Room, sitting patiently at the box. XoL business is long-term business that is highly relationship based, involving close due diligence of the client, in-depth knowledge of complex territories and a high degree of cooperation with brokers throughout the lifetime of the policy period. The business model of the product is based on collaboration at credit management level, client autonomy through high discretionary limits and certainty of coverage through the non-cancellable limits. The risk share element provides for a low claims environment, providing catastrophic cover.
At Lloyd’s level, individual syndicate business plans and line sizes must be approved, which means a strong case for XoL Trade Credit has been made and it is now our responsibility to ensure the internal reputation of the class is upheld. Once the business plan is approved, underwriters are fully empowered with authority to make decisions quickly and with minimum referrals. The unique combination of operating in a medium-sized business within a multinational organisation means that at syndicate level, you are never more than two steps away from a decision maker.
Outside of syndicate level, Lloyd’s offers many resources that are useful to underwriters. Knowledge- sharing within Lloyd’s includes a Wording database (Lloyd’s Wording Repository), so one can use appropriate Lloyd’s clauses such as sanctions clauses. The Lloyd’s Market Association operates a training institution called the LMA Academy, which helps by fostering a high-level collaborative approach to innovation and training. Working groups can be formed via the LMA in order for underwriters to confront communal issues together via the Lloyd’s platform. At the moment the LMA is carrying out vital work on the preservation of insurance as a source of capital relief for banks with market leaders grouping together to interact with bank regulators in the context of Basel III discussions. Brexit panels have also been formed in order to confront any issues that may arise as negotiations evolve. All syndicates have one-touch access to all of Lloyd’s international licenses, which is another great advantage for the market and its customers. For example, access to Lloyd’s paper out of Brussels will be essential once Brexit becomes a reality.
Lloyd’s has a unique business structure in the market; however access does not have to change. Intermediaries can now access Lloyd’s syndicates directly without becoming Lloyd’s brokers, via a bilateral TOBA with Canopius.
XoL Trade Credit has been around for over 30 years, but was written by only a handful of companies. Now it is available to all through Lloyd’s. You may not find us at the box, but our boutique offering provides experience and flexibility to fit the client’s needs and willingness to write complex and specialist business via the strength of the Lloyd’s platform. XoL trade credit has found a new home in Lloyd’s and Lloyd’s is now a new market for our brokers.
A note on the future: As the rest of the market pursues consolidation through acquisition, Canopius is placing a vote of confidence in itself by pursuing the second MBO of its history. Capitalising on the unique nature of its offering and strategy, on September 1, it announced a private equity backed management buyout. The deal will close in Q1 2018 and will re-establish Canopius as one of very few independent operators at Lloyd’s, placing a focus on underwriting expertise, strength and global reach.