Insights

Lloyd’s moves its focus towards sustainable growth

Posted 04.03.2022 – Quick takes

Patrick Tiernan, the Lloyd’s Chief of Markets, yesterday gave his latest update to market participants entitled ‘Ensuring sustainable performance.’

During the presentation, Tiernan and Kirsten Mitchell-Wallace, the Lloyd’s Portfolio Risk Management Director, outlined how the market would transition from a period of remediation to one of sustainable performance whilst maintaining resilience. Their key points were around pricing maturity, CAT underwriting and Climate Change.

Tiernan continued to emphasise that positive risk adjusted rate changes need to be a floor rather than an aspiration and reiterated that sustainable performance management is an unrelenting discipline. By doing so, Tiernan explained, Lloyd’s would be able to maintain the benefits of the past years of market remediation as well as support the future growth of the market.

 

Over the past four years, the attritional loss ratio had been the focus and its reduction has restored Lloyd’s to being able to deliver underwriting profits whilst enabling the market to continue to support innovation. Inflation is seen as a particular risk to the improvement in the attritional loss ratio and something that will be monitored with regards to pricing.

Although the market’s expense ratio has fallen as the result of market growth, costs in absolute terms have not fallen, so Lloyd’s will also continue to seek ways to improve this metric in order to maintain the competitive position of Lloyd’s.

 

From now, however, the Lloyd’s management will be turning its primary focus to CAT losses, whilst continuing to insist upon improvements in general underwriting standards. Tiernan was insistent that the market’s appetite for CAT underwriting has not diminished, but that higher underwriting standards were required in this area.

 

Lloyd’s see Climate Change as the biggest issue facing the world for a generation and will insist that underwriters take a forward-looking approach to pricing Climate Change (as opposed to purely backwards-looking models), backed-up by hard science.

 

 

The key ‘takeaways’ from the presentation were therefore:

Alpha comment

Although we did not learn much that was new yesterday, Alpha welcomes the continuing focus upon underwriting and pricing discipline – particularly in the arena of CAT exposure (where rates have risen more slowly than for other classes of business). The need for additional focus upon Climate Change is also something that we have been highlighting for some time.

Lloyd’s will announce its FY21 results on 24th March 2022.

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