Lloyd’s Execs Urge Underwriting Vigilance as Hard Market Persists

Lloyd's executives urge underwriters to maintain discipline even as the current hard market continues as perils emerge with their uncertainties.

Source: AM Best | Published on March 8, 2024

Lloyds and hard market

Lloyd’s executives urge underwriters to maintain discipline even as the current hard market continues as perils emerge with their uncertainties.

Efforts to predict the underwriting cycle have seen the top called many times but this is a “false summit” as risk factors have proliferated and uncertainty has not lessened, said Chief of Markets Patrick Tiernan in a market briefing. Higher underwriting returns that reflect the uncertainty provides confidence that current pricing dynamics will not change materially in the near term, he said.

With so-called secondary natural catastrophe perils, such as convective storms and wildfires, claiming higher losses in recent years, Lloyd’s is asking its market participants to re-evaluate their appetite for such perils, said Kirsten Mitchell-Wallace, director of portfolio risk management, in the briefing. She noted Lloyd’s prefers not to use the term “secondary peril” altogether.

“With so much of our Lloyd’s portfolio exposed to nat cat risk, standing still is simply not a option,” she said, adding participants are encouraged to articulate their willingness to lose risk appetite, particularly for nat cat.

On cyber liability, Mitchell-Wallace said the capabilities of the best Lloyd’s participants must be matched marketwide to meet the demand ahead. Economic losses from cyber events may be significant but insurance penetration is low.

Distinctions between ransomware and cloud outages are as big as those between earthquakes and hurricanes and the market needs to start thinking about this, she said. Cyber is less well-understood and more difficult to model than nat cats.

A focus on profitable underwriting comes as Lloyd’s announced its preliminary 2023 results, Tiernan said.

Lloyd’s more than doubled its underwriting income in 2023 as the market released preliminary numbers ahead of its March 28 results release. Underwriting profit in 2023 rose to £5.9 billion ($7.52 billion) from £2.6 billion the previous year, Lloyd’s said in a statement.

The shape and geography of the Lloyd’s portfolio in 2023 shielded the market from some of the major natural catastrophe claims activity,
Tiernan said. The Lloyd’s major claims ratio fell even as the wider
market expects nat cat claims to exceed $100 billion for the fourth-straight year he said.

Gross written premiums rose 11.6% to £52.1 billion on 4% organic growth and a 7% price change. The combined ratio improved to 84.0 from 91.9.

GWP growth was behind syndicate plans as syndicates demonstrated discipline in underwriting directors and officers business along with lower that expected growth in cyber caused by subdued rates and competition from other markets, Tiernan said.

Market pricing overall outpaced loss costs trends, he said.

Lloyd’s is not seeing market-adjusting levels of capital coming into the system at historical post-loss levels, Tiernan said.

As for demand, there is not enough risk-bearing capacity in the system to provide insurance protection to cover the economic risk for individuals and businesses worldwide, Tiernan said.

In the wholesale and specialty area, Lloyd’s is a good bellwether for how and if the unmet demand may be met, he said. Europe has the most potential for wholesale and specialty structural growth.

Tiernan noted future public and private investment in infrastructure, energy and habitation point to increasing demand for risk solutions in the coming years. Spending initiatives such as the U.S. Inflation Reduction Act and other fiscally expansive policies highlight specific areas of increasing property insurance demand, he said.

In casualty lines, the proliferation of intangible assets worldwide and escalating post-COVID-19 court settlements in the United States continue to pressure on coverage for businesses of all sizes, he said.

Together with current actions on past reserving years and an increased emphasis on cybersecurity,  Lloyd’s expects a “healthy” combination of resilience and opportunity in casualty, Tiernan said.

The full Lloyd’s results will be released on March 28  with guidance on expectations for full-year 2024 results.

Lloyd’s has a current Best’s Financial Strength Rating of A (Excellent).