Lloyd’s market message Q2 2024

The executive team of Patrick Tiernan, Chief of Markets, Rachel Turk, Chief Underwriting Officer, and Mirjam Spies, Lloyd’s Chief Actuary delivered the Q2 Lloyd’s quarterly market message on 16^th May.

Patrick Tiernan, Chief of Markets, opened the meeting reminding us that the performance of the market should continue to improve. Now that the fundamentals of market profitability have been achieved, following the very strong profit reported for 2023, we need to think about the longer term. He reported that there was no change to the positive outlook for 2024, with rate increases of +2.2% achieved across the market in Q1 as compared with the target of +1.5%. Whilst some classes of business are starting to see some rate reduction pressure, this is not across the whole portfolio. Property treaty saw rates at +6% and property D&F rates were up +5% this quarter, above plan of +3% and +4% respectively. The market has not seen excess capital flowing in and we are still within our peak zone catastrophe appetite. Casualty remains a key focus area but despite pressure on the casualty lines, we are still seeing sustained rate adequacy. General liability rates are up +1.4%, ahead of plan. The speciality classes are seeing varying rating movements, sub-class dependent. Overall, Patrick advised that rate increases for the year could ultimately be below target, as may the impact of foreign exchange rates and inflation, leading to less growth than originally anticipated for 2024. We were reminded that, in order to achieve the target combined ratio for the market, we need to continue to improve our systems and reduce all costs.

Rachel Turk, Chief Underwriting Officer, reported on the headwinds faced by the market, being inflation, the geopolitical landscape and climate risk. She advised that the market should not be complacent and continue to focus on price adequacy. Lloyd’s would be turning to long term, forward looking oversight with increased scrutiny on the delegated authority business written by syndicates subject to a materiality threshold.

Looking ahead to 2025, the number one priority remains performance.  The focus classes remain unchanged: US general liability, political violence, terrorism, SRCC (Strike Riots & Civil Commotion), Directors and Officers and Cyber. Lloyd’s recently issued guidance on the market regarding exposure to state-backed cyber-attacks. They are also increasing the volume of business syndicates can choose to allocate to writing business under the banner of ‘innovation’ from 2% to 5% of premium. A new ‘transition’ class is also being introduced  where syndicates can allocate up to 5% of their target premium to writing business with responsible or improving carbon emission targets. These initiatives should encourage the market to take advantage of the ‘opportunity gap’.

Mirjam Spies, Chief Actuary, gave some direction regarding capital setting. She urged the market not to lower loss ratio expectations nor use ‘remediation credits’ to reduce their capital requirements. She advised that whilst the 2023 year saw a release from the market’s casualty reserves, the years 2019 – 2022 saw the need for significant casualty reserve bolstering and that syndicates’ capital models need to be able to withstand up to a 45% deterioration on their casualty reserves. For 2025, syndicate capital should reflect the current uncertain geopolitical environment, with consideration given to potential complex and interconnected escalation.

Patrick then advised of a simplification to the charging structure for the market, based on written premium. There would also be an early release of the member modeller in July to help some syndicates and capital providers who want early sight of capital implications of new syndicates or latest business plans for 2025. He summarised the key takeaways from the message: focus remains firmly on underwriting discipline; claims oversight will be added to the oversight framework; focus on closing the opportunity gap with increased underwriting in innovation and sustainability; and improving the Lloyd’s experience. He added that top line targets should not be the focus. Performance should always be the key driver for the market.

A recording of the message can be viewed here.