Lloyd’s 4Q22 Quarterly Market Message

• Patrick Tiernan outlined the level of market dislocation – particularly in property treaty – and said that Lloyd’s needs to “up its game” to meet the current market conditions, whilst ensuring a prudent approach to exposure and capital. Tiernan said “we are in extraordinary times” … “ it is hard to know which is the correct historic forerunner to compare the current market to” given the specific factors at play.
• Lloyd’s planned Gross Written Premiums for 2023 are £56.0bn (vs. £48.9bn in 2022 at constant FX). Tiernan explained that inflation was one of significant additional drivers, with growth from exposure and rate roughly in-line with the 2022 plan. Tiernan also said that Lloyd’s was targeting a sub-95% combined ratio in 2023. The growth will be focused on good and outperforming syndicates (c60% of the growth) and new syndicates (c15% of the growth). Tiernan added that “poor performers have seen exposures cut.”
• Although Lloyd’s expects RARC growth to taper to single digits by the end of 2023, it will be prepared to change its plans should this not materialise.
• Hurricane Ian was a 1-in-7 years wind event on a net basis (1-in-10 years event on a gross basis) and is a manageable loss for the Lloyd’s market – but has boosted RARC growth and contributed to the market dislocation.
• Ukraine remains a manageable event for Lloyd’s with a forecast c£1.1bn net impact (no change on previous forecasts).
• Lloyd’s is anticipating that business plans will need to be re-submitted in early 2023 as a result of market conditions and that it will work collaboratively with syndicates and encourage early engagement.
• Emma Stewart explained that 2023 capital resubmissions are anticipated and that any capital shortfalls of more than 10% will need to be met. In addition, planned loss ratios may have to change to accommodate changes in market conditions.
• Overall, the Lloyd’s market has seen its capital requirements increase significantly (from £23.5bn in 2022 to £29.8bn 2023 i.e. +c25%).
• The outline changes in capital requirements, pluses and minuses, are as follows: +£2.1bn for FX (GBP vs. USD); +£4.4bn for Exposure Growth;        -£0.1bn for Risk Change; -£2.6bn for profitability; and +£2.5bn for inflation.
• Peter Montanaro informed the market that following Project RIO (Re-Imagining Oversight) the market is now subject to principles-based regulation. A Market Oversight Plan will be published later this month and will include details of Lloyd’s oversight.
• Conduct Risk & Culture will be key in 2023. Failure to meet targets may see an impact on business plans and in extremity will see run-off plans initiated.
  Oversight from Lloyd’s will include Delegated Authorities.
• Claims handling across the Lloyd’s market will also be a priority, with a focus on speed and the cost of claims.

Alpha comment

Alpha supports the growth ambitions of Lloyd’s given the favourable backdrop for the market. Alpha also supports the overall desire of Lloyd’s to deliver this growth within the context of capital prudence and exposure management.

That said, Alpha is not convinced that the data supports the argument that there has been significant differentiation between the best and worst syndicates and this will be a point of focus for Alpha’s future meetings with the Lloyd’s executive.

Overall, though, the message for 2023 is an undoubtedly positive one and should be welcomed by Alpha’s members.