Forecasts & Results
Lloyd’s market message Q4 2023
Posted 01/12/2023 – Quick takes
The executive team of Patrick Tiernan, Chief of Markets, Mirjam Spies, Interim Chief Actuary, and Peter Montanaro, Market Oversight Director, delivered the Q4 Lloyd’s quarterly market message on 30th November.
The overall message for the Lloyd’s market was a positive one, with the management team advising that 2023 was a year of continuous progress with exciting choices ahead.
Lloyd’s planned Gross Written Premiums for 2024 are £60.0bn (vs. £54.0bn in 2023). This represents 11% growth for 2024, split roughly equally from inflation and risk adjusted rate change (RARC) and exposure. Tiernan repeated his message that that the market should see planned RARCs as a floor not a target. He advised that the majority of the market growth is coming from good and outperforming syndicates with the underperformers contracting. Despite a heavy focus on business from the US, Canada and Australia, the market was seeing 25% premium growth from Asia and 12% from European business.
Tiernan explained that Lloyd’s will continue to focus their attention on the casualty, D&O, political violence & terrorism and cyber classes of business.
Casualty, which comprises traditional casualty (including US general liability and overseas motor) and financial products, is now written almost entirely on a direct insurance basis (rather than treaty). Tiernan warned the market should be focussing on reinsurance protection, a reserving review and rate adequacy on these classes. Lloyd’s will be focussing on reserving especially with the market leaders.
Lloyd’s D&O income is contracting for 2024 but it is important to continue to focus on rate adequacy in this softening market. He mentioned he was pleased to see syndicates taking action rather than Lloyd’s having to encourage remediation. There will be an ongoing assessment of prior year deteriorations and Lloyd’s robust messaging remains in place that syndicates must manage their books dynamically. Tiernan also advised that Lloyd’s would be very receptive to resubmitted business plans early in 2024 if managing agents wish to divert income away from this class.
Tiernan reminded political violence & terrorism remains an area of considerable uncertainty. This is the area with strongest growth of all the focus classes. Lloyd’s has some concerns over exposure in the non open market classes and syndicates were reminded to manage their exposure actively and consider the wider impact of geo-political uncertainty on other classes. Syndicates will be required to evidence why they are supporting market facilities.
Cyber also remains a key focus class. Premium growth is forecast to be a further +20% for 2024 on top of the +20% seen in 2023. Whilst there is some pressure on rate, Lloyd’s is reported to have strong leadership in this class and he stated cyber is “not currently an immediate cause for concern”. Over 75% of Lloyd’s cyber business is written by good or outperforming syndicates and Tiernan advised that the market must continue to strengthen its capability in this area. The PMD has a 4 pillar strategy which includes assessing capability vs growth plans; understanding exposure by peril, including a full review of reported RDS exposures; major event preparation; insight and market intelligence to keep Lloyd’s at the forefront of the class.
In conclusion, Tiernan reported that Lloyd’s would continue to focus on oversight to increase the market’s competitiveness and provide increased benefit to outperforming syndicates.
Peter Montanaro then provided a report on market oversight. He thanked the market for embracing the Principles-Based Oversight which (under project RIO) was embedded during 2023. They are now focussing on Consumer Duty and how it is being embedded across the market; Culture to continue to encourage a culture of inclusivity and high performance; Claims with the various benchmark tools in use to review and accelerate the payment of claims; and Operational Resilience in readiness for the PRA 2025 deadline.
There will continue to be a focus on Delegated Authority (DA) business, particularly on capability and alignment of interest. Lloyd’s will provide greater clarity on the review of ongoing DA relationships.
Mirjam Spies then reported on the market’s capital position for 2024. In aggregate, the market capital is increasing only marginally, from £29.8bn in 2023 to £30.5bn in 2024. Whilst exposure has increased the capital requirements, there has also been a capital benefit from exchange rates, forecast profit, investment returns and specific de-risking. This means that the market capital ratio has reduced from 51.9% to 48.9% for next year.
It was reported there is less loading of syndicates’ modelled loss ratios as more syndicates have been able to demonstrate they can deliver on their plans. In 2023, average loading was +2% and this has halved to +1% for 2024. Syndicates were warned, however, that if they systematically miss their plans, there will be an impact on their loss ratios.
Lloyd’s is also doing a review of inflation. Where previously the high inflationary environment was impacting premium, it was stated now the market needs to consider the claims impact and rigour needs to be demonstrated that this is being considered sufficiently together with impact of climate change.
Tiernan rounded up the meeting by saying that he was positive about the current performance of the market and bullish about the opportunities for further market development.
It is encouraging to hear a continued optimistic outlook for the market whilst at the same time certain classes of business remain firmly in focus. It was refreshing to hear a less pessimistic view on the Lloyd’s cyber market, with Tiernan sounding less concerned than perhaps earlier in the year. It is encouraging that the market appears to have listened to the concerns over D&O pricing and is self-regulating by way of reducing planned premium and exposures for 2024. Overall growth plans look bullish but not too optimistic and the market capital position has been reflected across members’ recent ECAs so came as no surprise. Steady as we go. The recording of the meeting can be viewed here