Insurance: Competition coming for Lloyd's

By John Grant After a failed attempt in the 80's the US is going to have a second crack at setting up an international specialist insurance market based out of New York. Lloyd's of London started operations in the seventeenth century as a means of pooling risks around shipments of goods to international ports. By 2009, it had expanded operations providing insurance to businesses in over 200 countries using 75 syndicates. It is a huge business and made an interim profit of US$2.2b in 2009. Now, New York Governor David Paterson has announced plans to create an exchange that will operate from New York and will be similar to the way Lloyd's of London is structured. New York has some advantages not only because it is a financial hub but also because it can fast-track its latest arrangements based on existing legal provisions that were put in place a number of years ago. However, New York's previous attempt to muscle in on Lloyd's of London failed to get off the ground. The rise of hedge funds and other specialist investors is seen as a point of difference between now and that failed 1980's attempt. These people and funds may want to try insuring catastrophic risks to balance investment portfolios. As with Lloyd's, these investors will participate directly in the syndicates which underwrite risks, without the requirement to become licensed insurers. By forming syndicates, participants are able to limit their specific exposure to  potentially large losses. Licensed insurance companies might also want to use the pools to balance their exposure if for example they felt overly exposed to a certain area or class of business. The exchange could provide employment for up to 3000 staff. Fifty percent of Lloyd's business originated from North America.