Lloyd’s syndicates to face ‘deeper’ scrutiny, says Tiernan

Lloyd’s syndicates can expect further scrutiny as part of a “deep dive” into the performance of certain classes by the Lime Street-based market in spite of preliminary results for 2022 described as “high quality”.

At the turn of the year 2022/23, syndicate business plan resubmission activity was low, according to Patrick Tiernan (pictured), chief of markets at Lloyd’s.

“However, over the last few weeks, Lloyd's has seen an uptick in reinsurance submissions as syndicates have worked through the impacts of their 1/1 renewals,” he said.

But he said that the balance of resubmissions was, so far, positively weighted and that he expected in the aggregate the impact will “not be material in terms of gross written premium (GWP)”.

“But we do expect to see a change in the shape of the 2023 underwriting year arising from four key factors,” he said.

Two of these factors included portfolio changes, driven by the risk return analyses of property underwriters, and shifting dynamics in certain D&O and cyber markets, which could prompt underwriters to reevaluate their plans, Tiernan said.

Further factors expected to influence the shape of underwriting in 2023 also included the lessons that have been learned around contract terms and conditions, particularly ones that create more stress in the tail of war or sanction impacted specialty lines, and, more positively, opportunities created by policy or economic changes, particularly in the US and Europe.

Tiernan said that Lloyd’s was focusing its attention on the risk adjusted rate change approved in syndicates' business plans. “As I've said a few times before, it is a floor and not a target. So we want to see how that is being applied in D&O and cyber in particular, to ensure rate adequacy does not suffer before the development can be properly evidenced in those classes,” he said.

He said his underwriting team’s “deep dive” into D&O would be looking closely at historical back books at an aggregate and syndicate level. A full report of their findings will be issued later in Q2.

Tiernan said his team would also be taking a deeper look at activity in the property binder market.

He said syndicates could expect two things, that Lloyd’s would “respond to things that we believe are systemic or structurally not working in the market and if there is a preponderance of poor results that is not changing based on other conditions”.

He explained: “When it comes to property binders, we’ve got a confluence of two things. Structurally we want to have a look to make sure that interests are aligned across the distribution chain and from a performance perspective, performance isn’t good enough.”

He said that his team had already received some feedback that included “moaning and groaning” but he said: “There’s not an awful lot of wriggle room for complaint on this. But folks could say: 'It's a 91.9% combined ratio, so why are you in our sandpit annoying us again?’ Our job is to look forward, to ensure that that attrition loss ratio, in particular, and distribution costs as well, are going to be robust enough to deal with what we think are the forward looking issues, which is the trend of major losses in the last five or six years.”

Lloyd's 2022 full year preliminary figures showed a "strong set of underwriting results and high quality balance sheets", which included a market combined ratio of 91.9%, Tiernan said.

In 2022, market GWP grew 19%, driven by inflation and foreign exchange, while exposures grew by 5%.

He said: “Improved pricing conditions have resulted in a more stable and sustainable additional loss ratio of 48.4%. So we think 2022 is a high quality result for Lloyds market.”

However, he said that maintaining underwriting discipline was “vital” in the context of ongoing uncertainty in geopolitics and increasing catastrophe losses. He emphasised the “heightened major losses in 2022”, which accounted for 12.7% of the combined ratio, driven by hurricane Ian and the invasion of Ukraine.

Did you get value from this story?  Sign up to our free daily newsletters and get stories like this sent straight to your inbox.