Lloyd's Q2 Market Message - Patrick Tiernan
This was the last Market message by Patrick Tiernan - before his taking up his tenure as Lloyd's CEO.
The Powerpoint slides are available here
In this final Market Message by Patrick Tiernan, his comments addressed to the market’s leaders, were emphatic about the need to maintain underwriting discipline and profitability – a reversal of these could undo all the good work of the past five years, he said, during which period the market has delivered a succession of excellent results, achieved its highest financial position and earned its highest ratings.
The full Market Message click here for the Lloyd's webpage and video link -as well as the speakers' slides. Also speaking were:-
- Rachel Turk, Lloyd’s Chief Underwriting Officer
- Alex Cliff, Lloyd’s Chief Financial Officer.
Patrick’s valedictory remarks (he has been as Lloyd’s Chief of Markets since May 2021 and is to become the next Lloyd’s CEO) served as firm warnings about both the trailing data seen by his team and the future direction of rates: he was concerned enough to remark that “the risk of pre-emptive action is now dwarfed by the risk of acting too late”, seeing such action as necessary to sustain the health of the market as a whole. Patrick wants to see more widespread corrective actions taken by syndicates: “The best syndicates are actively reducing exposure to less attractive sectors, but it is not yet sufficient and is not yet ubiquitous.”
Patrick had a call to action for the market’s leaders, namely that their pronouncements on market conditions must be matched by their underwriting actions in the disciplined setting of pricing, terms and conditions. The Lloyd's Markets team will heighten their scrutiny of syndicates’ performance, business planning and portfolio management.
On the positive side, Lloyd’s is “risk aware” and not “risk averse”, looking to support syndicates who can correctly identify and profitably underwrite areas which have attractive risk margins and where Lloyd’s is underweight.
Earlier in the Market Message, Rachel Turk described market conditions as “fragile” with different conditions by sector. She emphasised that talk of rates being down 10% to 15% as whole was “apocryphal” and in fact the risk adjusted rate change (“RARC”) for the whole Lloyd’s account at Q1 2025 is -3.3% - below plan, but, she continued, sentiment has shifted, becoming more negative, compared to the earlier optimism in the market’s £66bn premium forecast for 2025, which now looks unrealistic and Rachel expects (all things being equal) that the 2025 Account premium will be £60bn.
In the light of this, Rachel wants syndicates to demonstrate “a healthy dose of realism”, with discipline and portfolio optimisation and the pressure from the Markets team will be on syndicates to continue with “logical, realistic and achievable” business plans. Under-performance must not happen again Rachel said.
Lloyd’s will take oversight action against syndicates where necessary and this will be done in private. She expects under-performing syndicates to be shrinking or demonstrating some re-planning in a moderating rating environment and also if syndicates are not hitting their target rates then they must adjust the loss ratios in their capital model so that under-capitalisation does not occur. High performers will receive more consultative oversight.
Alex Cliff, Lloyd’s Chief Financial Officer spoke about how the prevailing macro-economic and geo-political risks should be reflected in both reserves and capital. At the moment, the market’s financial position is among the strongest it has ever been with a reserve margin of £5.4bn and a combined capital base of £47bn plus the Lloyd’s “Chain of Security”. She called for the returns on capital to be sustained, capital to be preserved, to maintain Lloyd’s financial strength, and to manage the capital wisely and to stay agile for whatever lies ahead.
---------------
As mentioned elsewhere, we welcome the appointment of Patrick Tiernan as Lloyd’s CEO and Charles Roxburgh as chair. In this latest market message, by calling for pro-active steps at this critical juncture, the three speakers echoed each other in their determination to see the market maintain its disciplined underwriting and cross-cycle profitability, as Hampden Members would expect.