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Lloyd's "Market Message" by Patrick Tiernan - 1 December

December 01, 2023

Lloyd's "Market Message" by Patrick Tiernan - 1 December

Patrick Tiernan presented the Q4 2023 Lloyd's "Market Message" to managing agents.

The YouTube video link is here and a copy of the slides here.

Highlights which we think readers will find relevant:

1. 2024 Planning Process: +11% growth in gross written premium expected for 2024, reaching £60bn compared to £54bn for this year 2023. The majority of the growth will be behind outperforming, good and new syndicates who were allowed to grow whilst the underperforming syndicates reduced in line with their remediated 2023 business plans agreed with Lloyd's.

Patrick commented that the expected growth in premium is split evenly between exposure and price: the latter mainly in line with inflation of values at risk rather than "Risk Adjusted Rate Change" ("RARC") [RARC is a measure of the underlying change in price allowing for the change in exposure. It is a relative measurement, which can only be calculated on renewal business.]

Rate increases may exceed 2024 plans in which case positive RARC will be coming through especially if inflation comes down.

2. Underwriting focus areas: Lloyd's will concentrate on casualty, D&O, Political violence & terror, and cyber.

Casualty is 1/3rd of Lloyd's income of which the US General Liability is half of this. Syndicates will face challenges of potential reinsurance price pressures, reserving reviews by Lloyd's, underwriting action needed to compensate for litigation fuelled claims costs.

D&O class expected to contract in 2024 following "strong messaging" from Lloyd's with a focus on the class to ensure syndicates are monitoring their portfolios appropriately with an emphasis on their back years.

Political Violence & Terror: the biggest growing class for 2024 with strong RARC. Lloyd's expects continued uncertainty with over 40 general elections. Exposures need to be properly managed and their volatility. Reinsurance programmes need to be correctly matched.

Cyber: Lloyd's is at the forefront of this class. Premium increasing by 20% for 2024. 75% of the class underwritten by Lloyd's outperforming and good syndicates.

3. Lloyd's overall capital setting: taking into account various factors such as FX, higher risk exposures, higher profit expectations, and higher investment income, Lloyd's overall capital requirement for 2024 of £30.5bn i.e. 50% of the expected gross premium, has reduced relative to 2024 exposure.

Comment: Growth of outperforming and good syndicates' income as well as Lloyd's scrutiny of some syndicates' business plans continues to bear fruit and expectations are for continued higher returns that reflect current pricing dynamics and that these will not change materially in the near term thanks to disciplined capital adjusting its expectations to reflect increased uncertainty in both the geo-political and the geo-financial world.