Lloyd’s market message Q1 2025

The executive team of Patrick Tiernan, Chief of Markets; Rachel Turk, Chief Underwriting Officer; and Emma Stewart, Chief Actuary delivered the Q1 2025 Lloyd’s market message on 13^th March.

Patrick opened by confirming that the market’s aim remains to continue to look around corners, to build resilience and to oversee a sustainable profitable market which grows in relevance and makes an appropriate return for the risks taken.

Patrick provided an overview of Lloyd’s preliminary 2024 results, emphasising the top quartile underwriting performance, with an underwriting profit of £5.3bn and a pre-tax profit of £9.6bn. Lloyd’s combined ratio increased to 86.9%, reflecting a 2.9 percentage point rise from 2023, primarily due to increased major claims activity arising from Hurricanes Milton and Helene and the Baltimore Bridge collision. Total premium income grew by 6.5% to £55.5bn, reinforcing the market’s growth trajectory with rates up marginally. Additionally, Lloyd’s seven-year average return on capital rose to 7.6%, up from 3.6% in 2023. Despite these strong results, Patrick reiterated the need for continued underwriting discipline, stressing that a sustainable combined ratio of below 95% remains critical for long-term market profitability.

Patrick mentioned Lloyd’s exposure to the Los Angeles wildfires, estimated at a net loss of $2.3bn, representing 3-5% market share of the total estimated industry loss. The majority of these losses (85%) stem from property, with marine cargo, fine art, and specie accounting for the remaining 15%. The losses are projected to fall as follows:

• 72% to 2024 underwriting year of account
• 21% to 2025 underwriting year of account
• 7% to 2023 underwriting year of account

He emphasised that while the size of loss is manageable, it serves as a reminder of the market’s vulnerability to large-scale losses and he expects a reaction from leading property underwriters. Patrick commented that the 2023 and 2024 market results have been stellar due to the low level of large losses compared with longer term averages. He reported that talk of ‘inevitable cycle turns’ are simplistic as they miss class level dynamics and obfuscate the more interesting and structural trends in the market today. Furthermore, he underscored the expectation that capital providers require strong returns, reminding that significant catastrophic events or macroeconomic shocks could lead to a rapid hardening of market conditions.

The dominant themes of 2025 and 2026 will be control of distribution, growth-driven consolidation and capital innovation. The overriding message is that the market must focus on delivering sustainable risk-weighted returns across the cycle and syndicates’ strategies must match the Lloyd’s view of their capabilities and relative strengths.

He advised that increased geopolitical uncertainty requires the market to be prepared to react rapidly to supply chain disruption.

Rachel Turk then reinforced the importance of syndicates actively monitoring key underwriting metrics, including rate adequacy, rate changes and loss ratios. She stated that Lloyd’s will be enhancing market oversight, with greater transparency and open dialogue expected from syndicates. Lloyd’s will pay particular attention to syndicates that underprice risk, expand coverage without appropriate justification, or increase expenses.

However, Rachel reported that she was encouraged by the market’s discipline at 1^st January renewals and the overall rating environment whilst noting that, looking ahead to 2026, now is the time to act. Small changes to rates, attachment points, expenses and loss ratios can together easily erode the market’s profitability. Syndicates should expect Lloyd’s to be looking closely at rate changes, line sizes, terms and conditions and reinsurance attachment points. They want the market to maintain its position in the top quartiles of global performers.

The Performance Management team are shifting the emphasis from annual plans to multi-year strategy discussions. They are needing syndicates to build resilience and a short term increase of expenses to achieve this will be tolerated. However, she highlighted that certain syndicates are demonstrating a mismatch in ambition versus strategy and there will be a demand for competencies to manage current and future market conditions with the bar set even higher for new entrants.

Rachel also presented an analysis of Lloyd’s portfolio evolution from 2005 to 2025, identifying key strategic focus areas:

• Aviation: Currently unprofitable and rate inadequate. Lloyd’s is reassessing exposure models, particularly around bodily injury assumptions, together with RDS scenarios.
• Energy: High potential for volatility, requiring robust underwriting diligence, particularly following offshore wind losses.
• Marine: Delegated authority underwriting must be carefully managed to ensure long-term sustainability.
• Complex Credit: A key growth area, provided syndicates can demonstrate the necessary expertise and risk management capabilities.
• Nuclear: Emerging opportunities in Small Modular Reactor (SMR) technology offer potential for market expansion.
• Reinsurance: Lloyd’s strong reputation and licensing advantages should be leveraged for strategic growth in reinsurance business.

Emma Stewart then described how the Lloyd’s market reserving margin has increased from 8% to 8.5%. She also reported that Lloyd’s has not experienced the casualty reserve drift seen by other markets to date. However, she cautioned that Lloyd’s will not tolerate optimistic reserving assumptions, emphasising the need for proactive reserve management.

Key reserving and capital considerations include:

• Syndicates must demonstrate clear strategies to address reserve deterioration early.
• Reserving cycles must be factored in, acknowledging that strong years tend to improve while weak years deteriorate.
• Avoiding optimistic bias. Planned rate changes must be achieved, otherwise syndicates will be required to hold additional capital.

She concluded that all assumptions must be carefully contemplated and grounded in reality and foresight rather than anchored to aspiration or historical averages.

Patrick closed the meeting by summarising the key messages:

• Underwriting discipline must be maintained.
• Lloyd’s is open for syndicates to explore new classes and geographies accretive to their portfolio if they can evidence the required expertise.
• There is more room at higher attachment points for more reinsurance in the portfolio, if at attractive terms.
• Look forward with purpose and conviction with an eye to the future