Reinsurance News

Lloyd’s can’t go around with its head in the sand as reinsurance market shifts: Patrick Tiernan

22nd September 2022 - Author: Luke Gallin

The reinsurance market has materially shifted and requires close attention ahead of the January 1st, 2023, renewals, leading Patrick Tiernan of Lloyd’s to warn that the marketplace can’t go around with its head in the sand.

lloyd'sTiernan, Chief of Markets at the specialist Lloyd’s insurance and reinsurance marketplace, addressed an audience this morning as part of the company’s Q3 2022 market update.

He discussed the market’s improved underwriting performance and stressed the need to maintain a sustainable attritional loss ratio, while also highlighting increased homogeneity around inflation assumptions.

As well as the above, one of the main topics Tiernan talked about was reinsurance, an area Lloyd’s feels has “materially shifted” and that “requires close attention.”

He explained that Lloyd’s sees it from both the cedents and reinsurance perspective, noting that per 2021 accounts, the marketplace reported that its outwards reinsurance is 27.5% of GWP.

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“So, if we strip out into company cessions, we are talking about just under a quarter of GWP ceded to the third party reinsurance market for capital, volatility management, and a multitude of other reasons.

“We’re closely watching the availability, structuring, pricing and terms of upcoming reinsurance placements, particularly in property and certain specialty classes,” said Tiernan.

“Our experience tells us to judge the deals that are bound and not the warning sounded. But at the same time, we can’t go around with our heads in the sand,” he added.

Tiernan went on to note the “inherent expectation” that managing agents at Lloyd’s consider the feasibility of their planned reinsurance strategy, with a reassessment of appetites, underwriting strategy, and capital if placements differ to plan.

“As part of that process this year,” said Tiernan, “all syndicates have been asked to provide their assumptions around their outwards reinsurance rates, limits, retentions and availability of cover to help evaluate underwriting plans.”

“And we don’t expect you to have a crystal ball at this stage, but we do need you to be cognisant of current conditions and ensure that your 2023 business plans have thoughtful assumptions and sensible contingency arrangements.

“It is already a requirement that Lloyd’s is advised of any material changes in the syndicates reinsurance program compared to plan,” said Tiernan.

Although reinsurance sector conditions are expected to be challenging for some at 1/1, Tiernan emphasised that market dynamics may represent an opportunity for writers of inwards reinsurance at Lloyd’s.

“Again, on our published accounts, inwards reinsurance is 36.5% of our total portfolio. But if I strip back fac and other arrangements, true inwards treaty in the market is about 15%. So, we’ll actively look to support those well positioned to take advantage of any opportunities you wish to pursue,” said Tiernan.

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