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2017 and 2018 insured losses were the highest ever over a two-year period, affecting the performance of the global (re)insurance industry and Lloyd’s alike.
Carriers are now undertaking major reviews and cut-backs of their under-performing business lines.
Lloyd’s has a year’s head-start, the Performance Management Directorate having implemented fundamental remediation plans in 2018.
A new Executive team at Lloyd’s has arrived to drive the profitability and modernisation of the world’s leading specialist market.
Premium rates are rising and the prospects for third party capital are appealing.
2017 and 2018 were the two most costly consecutive years for insured losses ever and are having a profound effect upon the global insurance industry.
The Lloyd’s market as a whole has lost money in the last three years and, even though the third party capital providers who are invested in the better syndicates at Lloyd’s have outperformed the market by a significant margin each year, the Performance Management Directorate has been undertaking a fundamental drive to improve the underwriting standards at Lloyd’s.
This has coincided with an overhaul of the Lloyd’s Executive and the arrival of Bruce Carnegie-Brown as Chairman, John Neal as Chief Executive and Burkhard Keese as Chief Financial Officer, with further appointments to follow. A complete revision of strategy for the future of Lloyd’s is underway. The new Lloyd’s Executive team appears to be far more focussed on delivering higher underwriting standards, whilst also trying to cut the cost base and deliver higher quality and more consistent profitability in a rapidly changing world.
In the wider UK market, the Prudential Regulatory Authority has instructed the insurance industry to improve its underwriting standards, something which Lloyd’s has a year’s head start in implementing. In the United States leading carriers such as AIG and FM Global, major competitors of Lloyd’s, are dramatically cutting back their insured exposures after severe losses.
At the same time less “alternative capital” has been raised for 2019, the first such reduction for several years.
The Lloyd’s market may well shrink before it grows again. The differential in performance between the best and worst syndicates has been increasing – for 2018, the combined ratio of the top quartile of syndicates on annualised figures was 93% as opposed to 134% for the bottom quartile. Some of the weaker elements are likely to depart. Lloyd’s will remain the world’s leading insurance and reinsurance market, through the collective intelligence and risk-sharing expertise of the market’s underwriters and brokers, and will lead the development of new relevant and innovative forms of insurance for customers globally.
Premium rates globally are starting to rise at the same time as the capacity to write many specialist classes is being withdrawn: at Lloyd’s, £3bn of premiums of under-performing business has been non-renewed into 2019. This trend should accelerate in the next twelve to twenty-four months as the true cost of the recent underwriting losses becomes fully recognised, together with the global need to improve underwriting skills.
This in turn will provide greater opportunity for third party capital to become more invested at Lloyd’s, as the best syndicates seek additional capital in the face of a much more attractive risk/reward ratio than has been the case in recent years.
The Executive at Lloyd’s is far more focussed on delivering higher underwriting standards, whilst at the same time cutting the cost base, to deliver higher quality and more consistent profitability in a rapidly changing world.