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The FD Interview: Luke Savage, Lloyd’s of London

If the finance function ever needed a poster boy to demonstrate how finance directors’ roles now encompass much more than just numbers, Luke Savage would probably fit the bill. When asked how the finance function has broadened, Savage, who was appointed FD at Lloyd’s of London in September 2004, smiles ruefully. As his role encompasses responsibility for risk management and operations at the 322-year-old insurance market, it is as wide as it is deep.

“One moment I am talking to investors about our subordinated debt and the next I am dealing with how to clean a 25-year-old building. In that sense it is a very broad role,” Savage tells Financial Director.

“Finance directors now have risk management and technology functions. I have them all. The breadth of responsibility goes beyond anything you would normally see – you have to be a jack of all trades.”

During his six years at Lloyd’s, Savage has seen a steady transformation in the way the iconic insurance market operates, emanating largely, he thinks, from improvements in the way the finance function operates.

Since he joined, annual premium volume – the amount of insurance premiums transacted through the market – has risen to about £22bn from £14bn. And the number of agents managing the syndicates that do the underwriting within the market has increased from the low 40s to 54, while the number of syndicates has moved from 50 to more than 80.

According to Savage, this is a clear indication that the market is becoming a more attractive place in which to do business. “We have a queue of people who want to join. When I joined Lloyd’s there was nobody clamouring to come into the market,” he says.

Savage has overseen a complete change in the capital framework of the market – Lloyd’s first-ever foray into debt capital markets and a credit rating upgrade. The latter is pivotal to its success because the reason why syndicates and their managers want to work with Lloyd’s is to enjoy not only the globally recognised brand and its global licence network that allows it to trade in 79 countries, but also because they can write business more cheaply under Lloyd’s since they can use its credit rating even if they carry a lesser rating.

Business sense

Its mutual capital framework, introduced in 2006, gives market members the ability to achieve higher returns compared with those in other insurance markets by way of being backed by £2bn in capital, funded by annual members’ contributions as a percentage of all policies underwritten, its own issued securities and subordinated debt. If any member is unable to pay claims against it, they have access to this pot – known as its central fund.

“What we do in finance makes Lloyd’s a more attractive place to bring business. We recognise the value of the central fund and how compelling an argument that is. You can write business at Lloyd’s with less capital than if you are a standalone company.”

While the mutuality of Lloyd’s capital framework and the central fund might be idiosyncratic of the market, the requirement for the finance function to be transparent is not.

Savage says that though Lloyd’s is a marketplace rather than a company, it still needs to appear to the outside world as the latter for the sake of comparability with the corporate world, which is why transparency in its accounts and its financial performance are high on his list.

According to Savage, Lloyds has suffered from a culture of secrecy in that regard, and the resulting lax approach to accounting transparency has put off potential new entrants to the market.

“If you go back a few years, Lloyd’s used to be secretive about its affairs,” Savage says. “We ran on a three-year accounting concept, whereby no one outside Lloyd’s understood what our numbers meant. We have got better at recognising the value of financial transparency,” he adds. “If you want people to give you their business, they have to be able to understand what they are putting their trust in.”

 

If the finance function ever needed a poster boy to demonstrate how finance directors’ roles now encompass much more than just numbers, Luke Savage would probably fit the bill. When asked how the finance function has broadened, Savage, who was appointed FD at Lloyd’s of London in September 2004, smiles ruefully. As his role encompasses responsibility for risk management and operations at the 322-year-old insurance market, it is as wide as it is deep.

“One moment I am talking to investors about our subordinated debt and the next I am dealing with how to clean a 25-year-old building. In that sense it is a very broad role,” Savage tells Financial Director.

“Finance directors now have risk management and technology functions. I have them all. The breadth of responsibility goes beyond anything you would normally see – you have to be a jack of all trades.”

During his six years at Lloyd’s, Savage has seen a steady transformation in the way the iconic insurance market operates, emanating largely, he thinks, from improvements in the way the finance function operates.

Since he joined, annual premium volume – the amount of insurance premiums transacted through the market – has risen to about £22bn from £14bn. And the number of agents managing the syndicates that do the underwriting within the market has increased from the low 40s to 54, while the number of syndicates has moved from 50 to more than 80.

According to Savage, this is a clear indication that the market is becoming a more attractive place in which to do business. “We have a queue of people who want to join. When I joined Lloyd’s there was nobody clamouring to come into the market,” he says.

Savage has overseen a complete change in the capital framework of the market – Lloyd’s first-ever foray into debt capital markets and a credit rating upgrade. The latter is pivotal to its success because the reason why syndicates and their managers want to work with Lloyd’s is to enjoy not only the globally recognised brand and its global licence network that allows it to trade in 79 countries, but also because they can write business more cheaply under Lloyd’s since they can use its credit rating even if they carry a lesser rating.

Business sense

Its mutual capital framework, introduced in 2006, gives market members the ability to achieve higher returns compared with those in other insurance markets by way of being backed by £2bn in capital, funded by annual members’ contributions as a percentage of all policies underwritten, its own issued securities and subordinated debt. If any member is unable to pay claims against it, they have access to this pot – known as its central fund.

“What we do in finance makes Lloyd’s a more attractive place to bring business. We recognise the value of the central fund and how compelling an argument that is. You can write business at Lloyd’s with less capital than if you are a standalone company.”

While the mutuality of Lloyd’s capital framework and the central fund might be idiosyncratic of the market, the requirement for the finance function to be transparent is not.

Savage says that though Lloyd’s is a marketplace rather than a company, it still needs to appear to the outside world as the latter for the sake of comparability with the corporate world, which is why transparency in its accounts and its financial performance are high on his list.

According to Savage, Lloyds has suffered from a culture of secrecy in that regard, and the resulting lax approach to accounting transparency has put off potential new entrants to the market.

“If you go back a few years, Lloyd’s used to be secretive about its affairs,” Savage says. “We ran on a three-year accounting concept, whereby no one outside Lloyd’s understood what our numbers meant. We have got better at recognising the value of financial transparency,” he adds. “If you want people to give you their business, they have to be able to understand what they are putting their trust in.”

 

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