Lloyd's Market Messages – June 2023

Patrick Tiernan presented the Lloyd’s market message ahead of the first round of business planning meetings with syndicates. He indicated that 2024 will be “another year of strong growth” for the Lloyd’s market, but warned of an extremely complex risk environment for underwriters as they seek to lean into the prevailing opportunity. Business planning will still require focus, with Lloyd’s oversight on underwriting remaining focussed on those areas where risk can be managed and mitigating against those that cannot.

The continued uncertain global backdrop provides a challenging and potentially volatile environment for the insurance market. The key areas which could influence plans include the continuing war in Ukraine, geopolitical tensions amongst global economic powerhouses, economic uncertainty in the largest economies, high inflation, natural catastrophe losses above expected levels (six out of the last seven years), climate change challenges, a difficult reinsurance market and an election year in 2024 for those countries which produce 70% of the market’s gross written premium.

Whilst there is no need to panic, Tiernan indicated that the market has not reached an oasis of calm but rather is operating in a world of “manageable chaos”.

The recent market results were strong with 2022 showing positive signs and continuing the trends in evidence post Covid. The Lloyd’s market premium grew by 19% (an increase of 8%) and on a GAAP basis produced a net combined ratio of 91.9%. The attritional loss ratio improvement to 48.4% reflects underwriting and pricing discipline.

These results set the scene for 2023, which has also had a positive start, again encouraged by market discipline, and exposures slightly down against plan, driven by risk-adjusted rate change – mainly in the property market.

The key growth areas continue to be Property (Direct & Facultative) and Property Treaty, with contractions in Directors’ & Officers’ and Cyber. He mentioned that Casualty (Liability), Financial Institutions and Professional Services business lines need careful management in the current conditions.

Whilst the market had produced underwriting profits in the last two years, Tiernan made the point that it was still some way off celebrating.

He then went on to to consider the changing shape of the Lloyd’s portfolio mix, which he noted had changed significantly over the last 10 years. Long-tail business had increased from 29% to 40% and short-tail had reduced from 71% to 60%. Distribution data shows that the highest number of risks insured are located in North America, with business driven by binding authorities and open market placement; reinsurance lags significantly behind. He was firm in his view that it was critical that robust oversight continues, given the changing shape of the portfolio and the evolving risk landscape. Normalcy must not breed complacency and syndicates must continue to manage the downside of external pressures, whilst taking advantage of opportunities presented.

One area which he specifically mentioned was cyber, where syndicates need to take a more definitive approach if they wish to offer a broader coverage beyond Lloyd’s requirements. If so, he stated this this will lead to a higher capital requirement, whereas those providing cover within the guidelines will get full support from Lloyd’s.

He concluded by saying that Lloyd’s performance remains the number one priority and outcomes – not promises – will drive syndicate ratings (Outperforming, Good, Moderate, Underperforming). The capital setting environment continues to be complex, with capital requirements expected to increase in linewith market growth and net exposure increases, despite a lack of new capital to provide additional capacity. Within this environment, Lloyd’s goal was to help the market capture the opportunity in a sustainable way that builds legacy.

“Our goal is to create the frameworks and infrastructure to promote the attractiveness of the Lloyd’s platform for you and your capital partners to execute your strategies here with appropriate vigilance,” he said.

The full recording of the message can found here.