Lloyd’s must push the envelope on rate in race against inflation: Neal

Syndicates in the  Lloyd’s insurance marketplace must continue to press for rate to stay ahead of inflation and hold the group’s combined ratio below the more recently secured target of 95%, top officials said following publication of FY2022 results.

Pricing must continue its forward march, particularly to outpace “the tricky inflation environment,” CEO John Neal (pictured) told a briefing on earnings. “This will remain key throughout 2023, particularly on the longer tail lines of business.”

Lloyd’s forecast for 14% growth in gross written premium in 2023 to £56 billion, announced earlier in the day, is built on 4% increase in rate ahead of a 6% price increase for inflation and alongside a 4% increase in volume, all subject to the vagaries of FX adjustments.

For now, syndicates have priced to beat claims inflation. “We are comfortable that these price increases will make up for the inflationary trends we are seeing across the board,” CFO Burkhard Keese said.

Price trends do, however, warrant an increase of oversight and supervision for cyber, D&O and binder books, Keese said. “Price reduction in D&O does not make any sense at all,” Neal added.

Lloyd’s is not tempted to push its combined ratio target below the established 95% mark, despite the notable dive below that peg to 91.9% for FY2022, officials said.

“It is better to give guidance which is really achievable,” Keese told reporters. “And we really want to achieve this.”

One way or the other “we’re headed towards another outstanding underwriting result,” Neal said, with the standard set of caveats for “if current conditions continue” and “assuming a normal frequency and severity of catastrophic events” and such.

“Our acute focus on performance is delivering the right results,” Neal said. “Performance will always remain the number one priority both now and in the future.”

For 2022, Lloyd’s managed its 1.6 percentage point decline to the 91.9% combined ratio with a 0.5 point decline in the attrition Al loss ratio to 48.4%. Mark 2022 as the second straight year of sub-50 readings to meet a key group KPI “demonstrating consistent improved performance and the underlying strength of the Lloyd’s portfolio,” CEO Neal bragged.

The more plodding work will be on the expense ratio where Lloyd’s yanked 1.1 percentage points in 2022 to hit 34.4%, but is still 2.9 points from the 2025 target.

“I would say we should end up in the next year a good step closer to this 31.5%,” was all CFO Keese could offer on outlook.

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