Big opportunities: Lloyd’s is an underwriters’ market

5 key takeaways

• Lloyd’s current market is positive for underwriters
• Time is right to re-underwrite poorly performing portfolios
• Concerns over potentially hidden business leaking from Lloyd’s
• Syndicate resubmissions or pre-emptions likely to be ‘on the upside’
• Participants ‘played with placing less in Lloyd’s’ but GWP still up

The Lloyd’s market of 2023 offers big opportunities with a positive environment for underwriters, optimism on premium growth and steady progress on digital transformation.

In spite of this, concerns remain around how best to measure market performance, and whether current measures could be masking business leaking out of Lloyd’s.

These were the views expressed in an Intelligent Insurer panel on the topic of the Lloyd’s market held in February 2023. Panellists included Patrick Davison, underwriting director at the Lloyd’s Market Association, and James Livett, associate director at the London & International Insurance Brokers’ Association (LIIBA).

One of the big opportunities in this market, according to Davison, is the current optimal conditions for re-underwriting a portfolio, particularly one that’s been underperforming for a number of years.

“There is a strong rating environment right now, and we can debate the dynamics and the cause of that, but it’s unquestionable, particularly on first party property lines. The environment is positive for underwriters.

“So rather than just charging lots more premium for the same risk, this represents an opportunity for people to be able to hit topline targets, while managing exposures in the book, which is a very positive thing for the market.”

GWP: the right measure?

Lloyd’s syndicates have planned for 14.3 percent growth in gross written premium (GWP) in 2023 but will these business plans need to be amended as they were in 2022?

Currently, Davison doesn’t see pressure points that could drive such changes. “It’s all opportunity at the moment,” he said.

“I’m not aware of a large number of syndicates who resubmitted post 1/1, which is a really good story. People were well prepared for what was coming on the reinsurance side. And, in terms of resubmissions or pre-emptions during the year, my sense is that it will all be on the upside and should be a relatively easy conversation.”

Davison said this straightforward conversation is likely to go along the lines of “same exposure; a bit more premium”. But he did add a caveat: “The market will turn, it always does, so people have got to underwrite sensibly.”

In terms of more premium coming into the market, Livett was “obviously all for it”. However, referring to the 14.3 percent projected growth outlined in syndicates’ plans, he questioned whether GWP was the right measure of market performance in the current economic climate, saying “we’ll know in time”.

He explained: “If prices are up 20 percent, for the sake of argument, where’s the gap going?

“What worries me is when we start looking at large growth in GWP across the market, if we see large price increases, is that hiding business leaking out of Lloyd’s of London? I don’t know the answer. I’m just speculating. It’s very difficult to measure that.”

Anecdotally, Livett has heard market participants saying they had “played with placing less in Lloyd’s in London”, but he said, “then GWP goes up”. He questioned whether the real market picture is being masked from that point onwards and suggested that more research was needed around that rather than just using GWP as a pure measure.

A counterpoint to such concerns, according to Davison, is that the market hasn’t been growing for a number of years in terms of GWP. He argued that Lloyd’s focus on underperforming classes and Decile 10 meant the market had “consciously shed business” in recent years.

“There’s an element of business that was previously written now coming back into the market, as well as new business. There are lots of positive noises about business that has not previously been seen in Lloyd’s coming now because we operate in a global market,” Davison added.

His sense was that almost everyone in the global market was suffering the same issues as Lloyd’s in terms of raising capital and reinsurers implementing the same terms. This is creating the same restrictions for people across the board.

But, Livett reiterated, people in the market shouldn’t let themselves be too blinded by the large percentage growth in GWP without understanding what’s underneath it.

Digital momentum

Lloyd’s journey to digitisation has been a long and winding one, but Livett and Davison agree that this time feels different.

Blueprint Two has been positive on the whole, according to Livett. “It is digitising this market and dragging it kicking and screaming into the 21st century.

“This could be the modernisation that works—it’s a joint venture and includes a lot of next-generation tech. But the tech is just the building blocks, as the project will then need to be plumbed in, which is where the market will start getting the operational and cost benefits and cost savings,” he said.

“We have to understand that we all have to change. We can’t just say ‘oh, I’m not going to do it because I don’t want to change my systems, when I want you to do all that work and then just give it to me on a plate’. We can’t have that, we all have to move together.”

Davison agreed that Blueprint Two is a recognition that the market needs to work collaboratively to modernise.

“I’m old enough to remember, probably, three different modernisation projects, and this one feels to me as though it has momentum,” he concluded.

Our panel discussed some of the key challenges for Lloyd’s and the London Market, following a tough 1/1 renewal and ongoing global uncertainty. To find out more, read our companion article:  Lloyd’s: a return to the nasty mid-90s?