Tindall Riley & Co Ltd: Mutual Insurance Companies And Corporate Governance Essay.

Tindall Riley & Co Ltd was founded in 1855 currently manages three companies: Britannia Steam Ship Insurance Association Ltd, Griffin Insurance Association Limited, and Wren Insurance Association Limited (Tindall Riley, n.d.). A mutual insurance company's sole purpose is to provide insurance to its policyholders and members. A mutual insurance company's profits are returned to its members or adjusted towards the premium. All these companies are mutual insurance companies; Britannia is a protection and indemnity insurance company; its members include ship-owners and charters, and Griffin currently has 40 members, primarily Lloyd's brokers and several medium and large-sized brokers, as it provides brokers insurance to its members. Wren consists of over 60 members, including many U.K. top architectural firms. Tindall Riley & Co Ltd is also authorised by the Financial Conduct Authority to carry out insurance mediation activities that consist of work preparatory or in the conclusion of a contract, primarily in case of a claim (FCA, n.d.). All three of these insurance mutual are authorised by Prudential Regulation Authority and regulated by Financial Conduct Authority.  

Britannia, Griffin and Wren are mutual insurance companies, most insurance companies aim to maximise profits, but mutual insurance companies provide insurance to their policyholders at the minimum cost possible. These mutual insurance companies are solely owned by their policyholders. All of the profits of a mutual insurance company are either given out as dividends or adjusted into a premium or reinvested into the company. These companies maintain a certain amount of capital and invest in low yielding conservative investments.

As its policyholders privately own them, they are limited in their ability to diversify income sources (Neme? and Fierbin?eanu, 2020). Britannia specialises in providing protection and indemnity insurance to ship owners/Charterers against ship wreckage, oil spill, damage to property, injury to crew etc.

Wren's membership consists of U.K.'s top architectural firms and provides indemnity against claims such as delay of project, mistake or negligence etc. Griffin provides claims handling, liability advice, risk management, and underwriting to its members, primarily Lloyd's brokers, and acts as an insurance broker.

In the United Kingdom, a corporation is basically an agent between the shareholders (principals) and the executives (agent), the separation in owning a business organisation and controlling it are the most basic and important aspects in Britain. This separation allows the professional managers to run the business as the investor might not have the expertise to operate the day to day functioning of the organisation. But this separation gives origin to the agency problem as the agents lack incentives to operate the business as efficiently as shareholders; this gives origin to agency cost.

The company law holds the key role to minimise such agency costs. As described by Kraakman et al., there are two ways to reduce agency costs: governance strategies and regulatory strategies. The governance strategies empower the principal (shareholders) to have more control over the agent, and the regulatory strategies involve a regulatory framework to control the agent's behaviour (director).

The company law reduces this cost, as Section 174 of the Companies Act (2006) is a regulatory framework. It acts as a check to control the director's behaviour and prescribes the reasonable duty of care, due diligence, and use of their technical expertise with reasonable standards. Also, Section 168 of the Companies Act (2006) provides for the powers of the shareholders to remove the director even before the expiration of his/her tenure; this section provides the principal with more governance powers.

Benefits of Mutual Insurance Companies

Managed by Tindall Riley: Britannia, Wren and Griffin, all three are insurance mutual, which means that their members are the owners and only work for their benefit. Hence, the directors of these organisations are agents, and the members are their principal, the directors need to serve the best interest of the members.

The director's fiduciary duty of care was gross negligence in the U.K. (Anidjar, 2020) which means that a director can be held liable for negligence he/she does not apply duty of care, due diligence. In re City Equitable Fire Insurance Co (1925), the directors and other company officers were held liable for their negligence as the company suffered losses due to them. Section 174 of the Companies Act (2006) codifies the director's duty towards the organisation as he is responsible for acting with care, exercising due diligence and using his skills with reasonable standards. In the United Kingdom, a director can be held liable for negligence, and a standard is set for the directors in the U.K. to follow with reasonable care.

The reinsurance market determines its short term and long term strategies based on market conditions (Ciuma?, 2009). There were a lot of natural catastrophes all over the world (Greece, France, Poland, Italy, Spain,  etc.); even though these catastrophes had impacted the reinsurance market grew slightly in 2018, and the market was thought to follow an upward trend line but then COVID 19 came into the picture, and the businesses started facing the more turbulent business. Both insurers and reinsurers will have to look into their terms and conditions to adjust them to make an adequate response to the actual living in the pandemic. A study named "Current challenges on the international reinsurance market" concluded in its research that top reinsurance companies such as Munich Reinsurance, Swiss Re, Berkshire Hathaway etc., are indicative of the fact that the reinsurance market is significantly affected (Rus and Brici, 2021). In its research, Standard & Poor Global Rating Company expects losses related to interruptions in business and cancellation of events. More problems for insurers can be from extremely low-interest rates because the rentability of assets is also in decline (Standard & Poor, 2020).    

Financial Conduct Authority, in its handbook, prescribes some supervisory principles to pre-emptively analyse a firm's model of business, product strategy and the way they run their businesses for FCA to identify and intercede in advance before the problem matures. It had a significant impact on the health care system, financial markets and vulnerable industries such as the manufacturing industry, tourism sector and hospitality market, and many other areas of business activity were affected. To ensure, mitigate and come up with an efficient healthcare response during this Covid-19 pandemic, governments worldwide have tried to engage in reinsurance contracts at the state level to provide financial relief to the state and the population (Sahin et al., 2020).

One of the most impacted sectors by the Covid 19 pandemic was the insurance industry, especially the investment markets; European insurers have invested €10 trillion and have an important role in the key strategic markets, on an estimate they hold about 40% of the European investments in fixed income products. The crash of equity markets coupled with a sheer increase in spreads on high yielding bonds has resulted in significant and instant market value loss.

Corporate Governance and Agency Costs

A UK based life insurance company Aviva has suffered such a fall in the market value that its solvency ratio has reduced by 31% points from 206% from December 2019 to March 2020. Also, due to an overwhelming number of claims toward the health insurance companies due to the pandemic, the individual businesses of the firms have suffered a great amount (Tagliatesta, 2021)

In these troubled times, there are always emerging risks as that of the COVID pandemic and other risks as well, Britannia in its risk watch published in October 2021, delve into various risk mitigation techniques and case studies which discuss topics like advice on loading container on bulk carriers, fire hazard and case study on previous accidents and damages.

The worldwide pandemic of Novel Coronavirus is causing severe human suffering and loss of human life on an unimaginable scale. In order to manage the situation and minimise losses the directors of Britannia, Wren and Griffin insurance mutual need to form specific strategies and take on advisory roles rather than monitoring roles. As also suggested by the FCA to pre-emptively identify risks and the insurers and the reinsurers need to evaluate their terms and condition in order for them to determine whether they are adequate in respect to the actual living in the pandemic and its effects.

Conclusion

In this time of the century, many emerging risks such as COVID 19, war, terrorism etc., affect insurance businesses in these troubled times. Also, extremely low-interest rates, cancellation of events and reduced capacity to rent out assets pose a great risk to the insurance and reinsurance market. In these tough times, the directors of these companies owe a duty of care and responsibility FCA, in its handbook, prescribes some supervisory principles to pre-emptively analyse a firm's model of business, product strategy and the way they run their businesses for FCA to identify and intercede in advance before the problem matures. Hence, the directors must be diligent and adapt to pre-emptively mitigate emerging risks.      

References 

Available at: <https://britanniapandi.com/2020/01/risk-watch-january-2020/> [Accessed 5 January 2022].

Anidjar, L., 2020. Directors' Duty of Care in Times of Financial Distress Following the Global Epidemic Crisis. SSRN Electronic Journal, 46(1). Available at: <https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3577404> [Accessed 27 December 2021]

Armour, J., Enriques, L., Hansmann, H. and Kraakman, R., 2017. The Basic governance structure of public corporations: the interests of shareholders as a class. Working paper. Harvard Law School Cambridge, p.1.Companies Act 2006.

FCA, n.d. Financial Conduct Authority. Handbook.fca.org.uk. Available at: <https://www.handbook.fca.org.uk/> [Accessed 27 December 2021].

Kraakman, R., Hansmann, H.  &  Armour, J.,. (2009). Agency problems and legal strategies. The Anatomy of Corporate Law: a comparative and functional approach, 3, 29-48.

Neme?, V. and Fierbin?eanu, G., 2020.Mutual Insurance Company - A New Form Of Company In The Landscape Of Romanian Legal Entities. Perspectives of Law and Public Administration, pp.117-123. Available at: <https://www.ceeol.com/search/article-detail?id=932222> [Accessed 27 December 2021].

Re City Equitable Fire Insurance Co [1925] Ch 407.

Rus, A. and Brici, I., 2021. Current Challenges On The International Reinsurance Market. DIEM: Dubrovnik International Economic Meeting, 6(1), pp.33-42. Available at: <https://hrcak.srce.hr/file/380980> [Accessed 5 January 2022].

S&P Global Ratings, How COVID-19 Has Changed Insurance, available at: https://www.spglobal.com/en/research-insights/featured/how-covid-19-has-changed-insurance, accessed on: 2nd of June 2021

S&P Global Ratings, https://www.spglobal.com/ratings/en, accessed on: 30th of March 2021

Sahin, S, et al., (2020). COVID-19 in a social reinsurance framework: Forewarned is foreamed.

Tagliatesta, M., 2021. The Future Of Insurance Brokerage: The Uk Model In A Post-Pandemic Scenario. p.15. Available at: <https://tesi.luiss.it/30959/> [Accessed 5 January 2022].

Tindall Riley, n.d. one company. three businesses Tindall Riley. Available at: <https://tindallriley.co.uk/company-profile/> [Accessed 27 December 2021].