This morning, Lloyd’s held a meeting regarding 2022 business planning and capital setting where the new Chief of Markets, Patrick Tiernan, and Head of Business Performance, Tony Chaudhry and Chief Financial Officer, Burkhard Keese addressed the market. The message from Lloyd’s remains relatively unchanged from last year. Syndicate business plans for 2022 must continue to be ‘Logical, Realistic and Achievable’ to ensure continued improved underwriting performance with reduced expense ratios. To that has been added that they will support plans which include sustainable, profitable growth. After three years of firming rates, Lloyd’s is now in a more sustainable position and is poised for profitability. Whilst we are approaching rate adequacy in a number of classes, many classes still need more rate. However, underwriters also need to concentrate upon strengthening Terms & Conditions.
Tiernan reported that Lloyd’s will continue to increase the differentiation of oversight between the well-performing syndicates and those which are negatively impacting the performance of the market as a whole. Oversight will therefore increase for all under-performers and, in particular, those that are perennially unprofitable, mentioned as being the bottom 15%. For these syndicates, a process of remediation will need to be agreed at board level. This will include a three year plan to return the syndicate to sustainable profitability. Capital loadings will also be used for poor performance. Failure to meet this plan will lead to more ‘existential’ measures.
Lloyd’s has also identified macro themes that require particular attention. There is still much uncertainty in the world and the market must adapt to these in addition to trends in cyber and ESG. Cyber is changing due to the nature of ransomware claims which is adding an additional challenge for the market. With Lloyd’s estimated to be writing around 20% of the global cyber premium in 2021, it is imperative that the market’s capacity for dealing with ever increasing risk needs to improve and as a result, oversight from Lloyd’s will also increase. Lloyd’s will also develop a market-wide systemic response plan.
Lloyd’s reported that 50% of the market achieved their plan for 2020 but this needs to improve going forwards to ensure the market makes an aggregate profit. Retrospective capital loadings will be imposed if a syndicate misses its plan in the previous year but only material loadings will be applied.
Alpha comment: it is reassuring that the message from the centre is one of differentiated oversight so that the good profitable businesses can continue to grow, where appropriate, and the poor performers which drag down the overall performance of the market are monitored far more closely to ensure their remediation plans are successful. We believe that this will benefit all market participants and help to ensure the improved rating momentum continues for as long as possible. The focus on cyber is also welcome, given Lloyd’s has such a material share of the global premium which is set to grow exponentially in the coming years.