Patrick Tiernan, CEO of Lloyd’s: Open letter to the market

Lloyd’s is one of the world’s best-kept financial secrets hiding in plain sight. Few outside the market realise that Lloyd’s can shoulder more insurance risk per unit of capital than any other financial institution in the world.

The market is comprised of more than a hundred syndicates and thousands of investors with varying levels of exposure correlation. These participants both compete and collaborate. The result is an ecosystem with embedded diversification.

Lloyd’s also operates with a layered and legally-segregated capital stack rather than a single balance sheet. Policyholder premiums are held in ring-fenced trusts. Investor funds are held by Lloyd’s but not co-mingled. And the Central Fund provides a mutual backstop for extreme events.

The result is a structural capital advantage. Ceteris paribus, business written within Lloyd’s can be structured to deliver higher returns on capital than comparable risks written elsewhere. Safeguarded and deployed responsibly, it is the market’s greatest strength and the foundation of its growing relevance.

That edge attracts long-term investors, sustains the market after major loss events and enables us to support customers through cycles of stress and recovery. Crucially, it also provides the confidence and capacity to underwrite new and complex risks at an early stage, often before others are willing to do so.

The world today faces complex, interconnected and volatile perils. It needs an insurance marketplace capable of convening the best underwriting expertise and providing the infrastructure, oversight and confidence required to understand, price and manage both traditional and nascent risks.

Markets exist to reveal prices and test propositions, acting as crucibles in which competing ideas about value, risk and responsibility are refined into something measurable. They aren’t perfect and must be appropriately regulated. But they remain one of the most effective mechanisms humanity has devised for balancing competing priorities, weighing different viewpoints and solving complex problems.

For those of us fortunate enough to work for Lloyd’s or in the Lloyd’s market, that means financial impact and global relevance go hand in hand. Working within such a system brings both privilege and responsibility. The decisions taken in this market shape how societies manage some of the most complex risks they face.

Our role in the Corporation is to protect the conditions that allow independent risk takers to deploy capital with discipline, to innovate and to earn sustainable returns through the cycle. The opportunity is clear: Lloyd’s structural advantage gives it the capacity to become even more relevant to the world we serve.

The Risk Landscape

Political fragmentation, a changing world order, technological disruption, climate volatility, cyber exposure and the prospect of artificial superintelligence are reshaping the risk landscape. We have a choice in how we respond.

If we accept that volatility is not cyclical but structural, then the answer cannot be retreat. It is a broader and more intelligent application of insurance and mutuality: clear analysis of where capital is needed, disciplined pricing of risk and more thoughtful mechanisms for sharing it.

Those facing the world as it is, rather than as they might wish it to be, are asking the insurance industry three searching questions.

First, policyholders are asking: Can you provide the protection I need to pursue my ambitions with confidence? Or should I assume that the state will step in when crisis strikes?

The answer to this is that the insurance industry can raise its game. Protection gaps remain wide in natural catastrophe, cyber and supply chain interruption. Cover is often insufficient or slow to adapt to a faster moving economy.

Our own analysis carried out in 2023 of a scenario involving heightened hostilities in the Taiwan Strait, points to a contingent business interruption gap of extraordinary scale. Economic losses would ripple up and down supply chains; insurance coverage would likely capture only a fraction of the damage.

Stronger balance sheets, sharper product innovation and a regulatory bias towards action are essential. But the insurance industry can also foster greater trust and relevance to boost the willingness of end clients to pay for private protection and prevention.

The alternative is a growing reliance on the public balance sheet. In 2008 and again during the pandemic, governments absorbed the shock. That capacity is now more constrained. Debt levels are higher and tolerance for open-ended intervention is wearing thin. In the next crisis, it can’t be assumed that the fiscal cavalry will ride to the rescue.

Second, clients and counterparties are asking: Can you measure risk, help mitigate it and still be there to honour the promise to pay when it matters?

Here the industry’s record is stronger. Insurance has weathered wars, financial crises and pandemics. Diversified capital, syndication and global spread underpin that resilience.

But it is not alchemy. Risk-based pricing is non-negotiable. As exposures rise, premium must adjust. The broader and deeper the pool of capital, the more affordable protection becomes. Mutuality remains the core economic advantage.

Third, investors are asking: Is this a cyclical and opaque sector or a catalyst for growth if it keeps pace with the industries reshaping the world?

History is clear. Economic progress depends on innovation and risk transfer advancing together. Maritime insurance enabled global trade. Actuarial science underpinned industrialisation. Aviation and nuclear pools made new sectors viable. When risk systems lag innovation, growth slows.

Today, technology is accelerating rapidly, from artificial intelligence to biotechnology to the energy transition. Insurance penetration in many markets is falling even as exposures increase. That gap is a drag on growth. Strong balance sheets, improving returns in specialty lines and renewed investor interest create an opportunity.

The risk is complacency: abundant capital has often preceded soft markets and squandered advantage. Can we grasp this moment to extend the reach and relevance of insurance, or will we allow volatility to outpace protection and therefore stymie progress?

Commercial and Specialty (Re)insurance

The past five years have been economically rewarding for our market. That recovery was overdue after a prolonged spell of weak performance. Stronger pricing, relatively moderate natural catastrophe activity, the resolution of generational pandemic and war losses, and disciplined capital management have restored robust profitability.

But it was a repair job, not a windfall. 10-year returns are only just closing in on double digits.

Nevertheless, insurance has become an increasingly attractive asset class offering investors uncorrelated returns at scale. That has not gone unnoticed. Non-traditional investors have returned to the market with deep risk appetites and long-time horizons.

Structures have become more bespoke, with clearer alignment between risk, return and duration. This sophistication is healthy; it increases capacity. But it also risks sharpening the cycle. That which is new to the market is untested under stress.

Competition has intensified in the last 12 months. Perceived price adequacy has led to increasing supply in heavily fished waters. Pricing discipline has weakened at the margin, particularly in peak but modelled risks.

Carriers have been pushed up the risk curve, searching for yield through structure, leverage or complexity. Less experienced MGAs are making more frequent forays into the more dangerous casualty waters, particularly US general liability.

This is brave to say the least – especially when it is not yet evident that we have found concrete rate adequacy following the pressure of inflation and legal system abuse in the US, which drove reserve strengthening in prior years.

Abundance has consequences other than rate and organic growth stresses. Investors and owners require excess capital to be deployed or returned. M&A activity among balance sheet underwriters is likely to remain elevated as cost synergies and capital efficiency become a greater factor in the return equation.

At the same time, consolidation has reshaped the distribution landscape. Fewer brokers now control a greater share of global capacity. They are well organised, more analytically sophisticated and more influential in setting terms.

This brings predictability, more scalable solutions and new products for customers. But it also places a greater premium on strong, disciplined and consistent underwriting.

Despite all this capital and distribution power, the gap between economic losses and insured losses – between the full cost of loss events to society and the portion of that cost covered by insurance or reinsurance contracts – continues to widen.

The evidence of recent years shows that capital alone will not close the gap. It will require more informed attitudes to risk, more predictable policy and regulation, and more innovation and appetite to cover nascent risks.

Huge investments are being made in defence capability, energy security and infrastructure. The most frequently cited example is the rapid proliferation of data centres.

Global investment in AI-related infrastructure reached record levels last year. McKinsey calculates the global data-centre sector will require up to US$6.7tn in investment by 2030 to satisfy surging requirements, with the bulk directed at AI-capable infrastructure.

These are no longer marginal facilities. They are vast, energy-intensive nodes at the heart of modern economies. They need to be properly insured. Demand is already building and far outstripping supply.

The issue is not simply volume but also complexity. These facilities are expensive. But they also concentrate risk – combining high-value physical assets, extreme power dependency, sophisticated software stacks, cyber exposure and the potential for systemic business interruption. Losses are unlikely to be neatly contained or easily diversified.

This is not a new pattern for our industry. Cyber risk began to emerge decades before credible insurance solutions developed at scale. Even today, global cyber premium remains small relative to the economic exposure it seeks to protect.

Data centres are already underpinning economic growth, national security and technological progress. Delayed or inadequate risk transfer would have consequences for growth far beyond the balance sheets of insurers.

Meeting this challenge will require greater use of novel structures, faster aggregation of line size through consortia, and more efficient deployment of capital. It will require underwriting judgement, not just modelling. And it will demand a marketplace capable of bringing together expertise, capital and innovation at speed.

These new and, as yet, unquantified risks sit squarely in Lloyd’s bailiwick and presents an opportunity for us to excel.

Results

The market produced a strong set of results in 2025 with a profit before tax of £10.6bn, up 10.1% and beating the forecast set out at the start of the year. Strong underwriting and investment performance resulted in a return on capital of 22% in 2025. This is the third year in a row in which returns on capital have exceeded 20%.

I would like to congratulate market participants for their professionalism in delivering these results. I would also like to thank members for supporting the market with their capital, and Corporation colleagues for their hard work over the past 12 months.

In March 2025, the Lloyd’s market forecast gross written premiums of £60bn for the year. The market closed the year at £57.9bn, an increase of 4.2% compared to 2024 and comfortably within the 5% guidance range, demonstrating discipline in the face of moderating pricing conditions.

Growth was mostly derived from areas where the market rightly saw adequacy and from structured products and solutions.

The full-year combined ratio was 87.6%, reflecting comparatively benign catastrophe losses in the latter part of the year. Major claims were again below the 10-year average of 10.4%. The Californian wildfires in the first quarter were the largest event of the year.

The underlying combined ratio – defined as the combined ratio, excluding major losses – was 81.8% in 2025, 2.7 percentage points higher than the year before. This reflected a heightened expense ratio, which rose to 35.6%, up 1.2 percentage points – a trend that we will be monitoring.

The attritional claims ratio was 47.9%, up 0.8 percentage points.

While the financial toll on the Lloyd’s market from catastrophes this year has been modest, the human toll has been a heavy one. We never lose sight of those whose lives have been lost, shattered or upended.

Prior year releases were 1.7%, down 0.7 percentage points from 2024, as the market continued to absorb reserve strengthening related to the conflict in Russia-Ukraine and in casualty classes.

The investment return of £6bn from Lloyd’s conservative and well-balanced portfolio exceeded expectations.

The platform itself continues to generate high interest from potential new entrants. The pipeline for 2026 is strong as we seek to attract more of the world’s leading underwriters to Lloyd’s.

Our 2025 Full Year Results can be viewed here.

Strategy

The 2025 market results provide a firm foundation on which to build for the future. My focus is on setting a clear strategic direction that sharpens our financial edge and maximises our unique capital advantage to ensure Lloyd’s remains the pre-eminent global marketplace for insurance risk.

The risk landscape demands that a storied institution such as Lloyd’s raises the bar and fulfils its purpose of bringing together the world’s leading risk takers to advance global progress.

The strategy has four drivers. First, leading underwriting performance. Sustainable profitability through the cycle remains the primary measure of success. We will promote expertise and underwriting discipline, while remaining bold in embracing emerging risks.

Second, building a more efficient and flexible marketplace. We will reduce friction, lower costs and create predictable, risk-based oversight so that capital and talent can move at pace.

Third, maximising our capital advantage. Our unique structure allows more insurance risk to be taken per unit of capital than any other financial institution in the world. We will protect and advance that advantage to increase returns for the same level of risk.

Fourth, creating a Lloyd’s to be proud of. Focus, innovation and talent are not soft ambitions. They are competitive necessities. We will invest where we increase return or relevance, and we will stop doing what does not.

This strategy is ambitious but executable. It does not rely on moon shots or magic words. It depends on clarity, cohesion and consistent delivery.

It will also require us to curate a culture where our people have the confidence to take the risk, the empowerment to make it happen and the desire to own the outcome. That is what we intend to achieve.

Many organisations claim a unique advantage. Few can substantiate it. Lloyd’s can.

Fewer still can capitalise on that advantage from a position of strength. Lloyd’s can.

Even rarer are institutions whose core purpose aligns directly with an essential economic imperative.

Risk transfer – properly executed – underpins growth, resilience and innovation. This is the role Lloyd’s has played for 337 years and still does today.

It is a privilege to lead this organisation at a moment when this alignment, and the opportunity it presents, are so clear.

Best to all,

Patrick

Chief Executive, Lloyd’s