2014 is already proving to be a big year for Lloyd’s of London. With new CEO Inga Beale installed and a new claims service launched, the 325-year-old market has given assurances it can adapt to the challenges posed by a reinsurance sector that is being flooded with new capital.

With its Singapore market hub now performing well, Lloyd’s is targeting emerging markets under its Vision 2025 plan, which was launched in 2012.

Chairman John Nelson says the new capital landscape is a major challenge, but he’s also optimistic that the market can seize the advantages offered by the influx of investor capital without losing its way.

“We have the luxury that, as a market, we can frame the way in which we attract capital, the way in which we do business, to suit the new dynamics,” he said last month. “So we are in a relatively strong position, providing we keep evolving our own business model.”

The pressure on premiums is mainly caused by the emergence of reinsurance as a safe source of investment for institutional investors such as pension funds. It is changing the way reinsurance is distributed, as new reinsurers emerge in markets like Bermuda and new ways of covering risk develop.

Mr Nelson says a softening of reinsurance rates as a result of the unprecedented capital inflows, magnified by a low number of catastrophes last year, has put an emphasis on the need for strong underwriting.

He has reason to be cautious. Lloyd’s has suffered from time to time in its long history from underwriters taking advantage of an over-supply of capital to get involved in high-risk plays that failed.

As the world’s leading specialist insurance market, Lloyd’s is in the “fortunate position” of being able to adapt the way it accepts and utilises capital, Mr Nelson says.

Last September he warned of the systemic risk that third party-backed, non-traditional reinsurance capital could pose to the sector. But later that month he presented a more upbeat view, telling the Monte Carlo Reinsurance Rendezvous that the new capital could help the commercial insurance market grow from $US600 billion ($673.98 billion) now to $US2 trillion ($2.24 trillion) by 2025.

How that capital is utilised is the key to future success. Such a significant challenge – and opportunity – comes amid movement at the top for Lloyd’s following the departure of CEO Richard Ward last year. Having revolutionised many of the market’s systems – some of which had not changed for a couple of hundred years – he left at the end of last year.

Lloyd’s sources have told insuranceNEWS.com.au that having moved the market a long way down the path to a paperless environment, Mr Ward was not as well-equipped to deal with the market’s new challenges, which are based more around the risks and potential rewards of new capital.

The emergence in the middle of last year of the Aon-Berkshire Hathaway sidecar deal and the Willis 360 arrangement startled the Lloyd’s hierarchy. What they suddenly needed at the helm was an experienced underwriter who could maintain Lloyd’s dominance of specialist insurance and reinsurance.

Mr Ward, a chemical engineer with a background in business transformation, is at heart a technocrat. His replacement, Inga Beale, is a highly experienced underwriter who understands the stresses and strains of the core business.

Mr Nelson says Ms Beale, who took over in January, is the “ideal” CEO for Lloyd’s, with top-level international experience, deep knowledge of the market and an underwriting background.

Previously Group CEO of Lloyd’s managing agent Canopius, she has also spent four years with Zurich Insurance – some as global chief underwriting officer – and is a former group CEO of Swiss reinsurer Converium.

Ms Beale began her tenure by saying Lloyd’s is a unique market with “an extraordinary opportunity to increase its footprint” and cement its position. They would have been golden words to Mr Nelson, whose vision for Lloyd’s is all about global expansion.

“I’m looking forward to working with the Lloyd’s team and the wider market to deliver a strategy for profitable and sustainable growth alongside Lloyd’s robust market oversight,” she said.

One of the last programs overseen by Mr Ward was unveiled last month – a new shared service to handle high-volume, low-value claims. Such claims make up about 85% of all Lloyd’s claims.

The service is provided by claims specialists Crawford & Co and business processing company Xchanging, and is part of the wider claims transformation program at Lloyd’s that Mr Ward also put in place.

Lloyd’s is also continuing to diversify its global presence, with Mr Nelson leading a push to increase revenue from developing economies. In an interview with Insurance News (the magazine) last year, he identified China, Brazil, Mexico, India and Turkey as high-priority countries for the market to concentrate on.

And following on from the growing success of its market in Singapore, Lloyd’s now plans to open a branch in Dubai later this year. Like Singapore, it will be a full trading platform.

Lloyd’s ranks fifth for global reinsurance premium income and is the largest surplus lines insurer in the US. Last year 89 syndicates were underwriting insurance at the market, covering all classes of business from more than 200 countries.

All in all, the past year has demonstrated that the venerable institution can also adapt to new realities with surprising speed. New technology systems are coming into operation and London will one day merely be the base for a network of market outposts scattered in financial centres around the world.

Lloyd’s has a coherent strategy for dealing with an influx of capital that may or may not be a new permanent feature of the global reinsurance market. How long that capital flood will continue depends on how long it takes the developed world’s investment markets to recover.

In the meantime, Lloyd’s sees its strong underwriting supervisory standards as an asset rather than a hangover from a less volatile age. Capital markets want certainty in their investments, and that’s what Lloyd’s can provide.