Syndicates follow Lloyd’s risk cues to rising 2023 growth outlook

The growth and margin outlook for  Lloyd’s syndicates has nudged up to date in 2023 on the back of improved risk-adjusted pricing in property and a syndicate field seemingly adhering to Lloyd’s concerns over select lines, Lloyd’s chief of markets Patrick Tiernan (pictured) indicated in the kick-off to his Q2 2023 market message.

“We are encouraged by the continued market discipline as judged through the lens of changes requested to plans,” Tiernan said. “Exposure is slightly down compared to the original plan, driven predominantly by an increase in risk adjusted rate change in property.”

Gross written premium in 2023 is now on track for 15% growth to £56.7 billion, up from an initial target for 14.3% growth back when syndicates first pencilled in plans for 2023, albeit down from 19% achieved in 2022. At a portfolio level, Tiernan said, planned risk adjusted rate change (RARC) has risen from 3.6% to 5.1%.

Pricing gains are applauded. With fresh warning that syndicates not use the higher interest rate environment and investment yields to subsidise underwriting. “The current environment does not influence our view on cash flow underwriting,” Tiernan said, setting instead expectations that syndicates use conditions to build buffers against the 95% combined ratio floor.

Growth within the portfolio is said to be coming from property D&F and property treaty against a contraction in D&O and cyber, all a rough match to Lloyd’s own missives and warnings to syndicates to date in 2023.

“In our view, we see sustainable returns for the proximate risks in property, notwithstanding challenges ahead, if syndicates retain control of their capacity deployment and distribution,” Tiernan said of the property side. Distribution concerns continue over oversight of underwriting quality from delegated authorities.

Despite historical focus on property and property cat, casualty may come under increasing Lloyd’s supervisory review having risen to some 40% of the portfolio versus 29% some ten years ago.

“Casualty and finpro lines require careful consideration of the longer-term considerations of the prevailing conditions,” he said. Lloyd’s sounded concerned on syndicate grasp of the length of some tails, calling out the example of delay to claim in D&O after economic downturns.

But oversight within property is evolving as well following portfolio changes. US wildfire, severe convective storm, and flood are now “achieving the same level of materiality” as the natural catastrophes bunched into Lloyd’s LCM5 category, Tiernan said.

“It is critical that we ensure that our focus and oversight evolves, commensurate with the changing shape of the portfolio and the evolving risk landscape,” Tiernan said.

And the headline area of nat cat oversight offers new challenges. The hardened property reinsurance market, with its higher rates, higher attachment points, lack of sideways cover and tighter coverage, means Lloyd’s will be looking at the shifting ground of net exposure, Tiernan warned. Closing the gap between syndicate nat cat loss forecasts and final losses “is not complete,” he warned.

“The improving rate environment does not alleviate the need to understand aggregates and manage exposures properly,” Tiernan said. “A rising tide will not float boats that are holed below the water line.”

Growth should continue into 2024, Tiernan said, albeit with a regulator’s sense of ever-new risks lurking on the horizon.

“I do anticipate 2024 to be another year of strong growth for the Lloyd’s market,” Tiernan said. But underwriting conditions “remain complex,” he added, with special call-out for macroeconomic risks as well as geopolitical risks from regional conflict to an election cycle peak in nations delivering some 70% of Lloyd’s premium.

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