The Lloyd’s insurance and reinsurance market has “headroom” to grow its catastrophe book of business sensibly in the hardening market, according to Chief of Markets Patrick Tiernan.
Tiernan was speaking this morning during his delivery of a Q4 message to the market and explained that despite plans being submitted for the year ahead, he expects there could be some changes as the global insurance and reinsurance market has turned so dramatically since hurricane Ian.
Speaking to market participants at Lloyd’s Tiernan said that the global re/insurance market is now experiencing “A level of dislocation that is beyond what would have been reasonable to forecast.”
However, despite the dislocation and elevating cost of reinsurance, Tiernan said he is “confident opportunities can be taken” by those underwriting at Lloyd’s.
He explained, “We said we expected you to tell us about and to plan for upward pressure on market pricing driven by critical cat and stressed specialty classes.
“We talked about the pressure on reinsurance capacity structures and pricing and the potential impact this will have on the 2023 business planning process.
“However, recent weeks have demonstrated a level of dislocation in the property and specialty insurance and reinsurance markets that is beyond what would have been reasonable for you to forecast when you submitted your plans to us in September.”
He said Lloyd’s is confident that the downside risk of the current market environment can be managed and any negative contagion can be addressed by syndicates, “so as not to hold back the Lloyds market as a whole.”
“These are extraordinary times and this is evidenced by the new pastime of trying to best link the current pressures we face with its historic forerunner.
“The confluence of high inflation, rising interest rates, elevated cat losses and uncertain capital flows appears to be without recent precedent. So what does that mean for the 2023 plan?” he commented.
Tiernan explained that planned property premium for 2023 is about £18 billion in premium, or around a third of the Lloyd’s book.
“We have headroom in our cat appetite to grow the book sensibly and we stand ready to respond at speed to well considered submissions,” Tiernan said.
Going on to say that, “If, as we expect, there are opportunities to take advantage of risk-adjusted rate increases above the planning assumptions, we expect you to want to make significant strategic changes to the makeup of the property plans you’ve submitted.
“And we will continue to support those who have the capacity, capability and expertise to lean into that opportunity.”
He stressed that Lloyd’s will be carefully applying its oversight in the current catastrophe market opportunity.
“We’ll be carefully scrutinising any changes to aggregate or quota share reinsurance programmes that have been protecting sideways exposures and binder books.
“It almost goes without saying, but plans that are unrealistic or cherry picking to cure a capital problem will take an awful lot longer to process.”
Summing up on property classes and the evident catastrophe risk opportunity, Tiernan explained that, “There are stresses in the property and specialty classes that require unprecedented levels of agility in the coming months.”
Going on to explain the plan assumptions for 2023, saying, “In terms of figures, the planned GWP for 2023 is £56 billion representing modest exposure growth over 2022.
“Expansion is concentrated in syndicates who are best equipped to deliver a sustainable growth. Our operating expenses are reducing our capital is stronger than ever.
“Therefore when I turn to the future, I think this may well be a market of winners and losers and the pain and the gain is unlikely to fall evenly, but our goal is to ensure a deliberate arc of progress.
“There may be no better time to be involved in the insurance industry.”