Lloyd’s wields stick on cyber exclusions: capital weights & downgrades

Lloyd’s will show no mercy to syndicates that seek to write cyber coverage without the set of policy exclusions Lloyd’s has demanded for controlling systemic risks, Lloyd’s chief of markets Patrick Tiernan has indicated during his Q2 market message.

Syndicates showing “determination” to align with Lloyd's demands for new exclusionary wordings on state-backed cyber activity have Lloyd’s “full throated support.” The move is “critical to the maturing of the class.” More recalcitrant syndicates may face the stick.

Syndicates will first be slapped with heavy capital weightings on lingering unwanted exposures in core cyber coverage, may be penalised within the Lloyd’s internal rating system and can ultimately be forced to simply take their business elsewhere, he said.

“If you broaden the coverage to include risks that are outside the letter of the bulletin in the core product, this will de facto increase the exposure you underwrite and you will require more capital,” Tiernan said in kicking off the litany of threats. Lingering exposure to state-backed cyber hostilities inside the core cyber product, the focus of recent Lloyd’s demands for exclusionary policy wordings, will be booked at “the full policy limit.”

Further out, syndicates will see status downgrades that can clip their wings during the planning phase.

“Failure to meet expectations may result in a downgrade of the syndicate or act as a barrier to achieving outperforming status,” Tiernan warned. “In exceptional circumstances, immediate action may be taken” vis-à-vis the 2024 business planning process, he said.

Longer-term, broad policy covers will be shown the door. “For those who want to continue to offer the broadest coverage within the core product, when the adoption phase settles down, that will necessarily be outside of the Lloyd’s market,” Tiernan said.

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