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“Critical concerns” persist for Lloyd’s despite progress: Gallagher Re

12th July 2022 - Author: Matt Sheehan

A new report by reinsurance broker Gallagher Re concludes that a number of both internal and external challenges remain “critical concerns” for the Lloyd’s of London market, despite measurable progress last year.

lloyd'sThe first annual Lloyd’s of London Market Report from Gallagher Re tracked the Lloyd’s market’s capital and profitability throughout last year, and showed a positive trajectory in terms of performance, reforms and profitability.

But uncertainties caused by the broader inflationary environment, natural catastrophe losses, and Russia’s invasion of Ukraine as well as their potential impact are all key priorities and factors that could frustrate the positive trajectory of the market.

And on the internal side, analysts highlighted challenges around the formulation and implementation of ESG strategies, and other Lloyd’s initiatives including digitisation and modernisation.

“Lloyd’s made great progress in 2021, particularly in view of the natural catastrophe burden that hit the market,” said Tom Wakefield, UK CEO of Gallagher Re.

Stratumn, by SIA Partners

“A relentless effort to improve syndicates’ performance has led to satisfactory results, which bolster the market’s sustainability and its credibility. Lloyd’s steadily decreasing attritional loss ratio points to the positive performance impact of portfolio remediation and rate increases,” he continued.

“Challenges remain, though. Maintaining or even stabilising the positive trajectory in 2022 will be frustrated especially by intensifying inflationary pressures and their impacts.”

“That said, we see a level of momentum not just in underwriting performance, but also in market reform measures, which have taken a big step forward through the agreement this year of a data standard for electronic trading. Lloyd’s remains a market which we will promote to our clients as resilient, innovative, and strong.”

Examination of various multi-year metrics by Gallagher Re demonstrates that efforts to improve the sustainability and credibility of the Lloyd’s market are already having a positive impact, with most Lloyd’s syndicates achieving a sub 100% combined ratio in 2021, and most trending towards more profitable results.

Similarly, by viewing the breakdown of Lloyd’s profit and loss since 2011, analysis highlighted a period of recent volatility and increased risk, but most notably the marked turnaround in underwriting performance in spite of reduced investment returns.

Positive trajectories in attritional loss ratios are also evident, as they continued on a five-year decline reflecting continuing rate momentum across Lloyd’s following 16 consecutive quarters of positive movement as well as the impact of remedial work undertaken.

“We found a moderate correlation between the mean and standard deviation of each syndicate’s combined ratio over the period 2012 to 2021,” explained Shireen Gammoh, Gallagher Re’s Head of Strategic and Financial Analytics.

“While that suggests more volatile syndicates have tended to outperform, it demonstrated that consistent profitability was also achieved with lower volatility. Our analysis further shows that the general spread of performance across the market has significantly narrowed, and shifted the market towards a profitable result in 2021 versus previous years.”

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