John Hancock, the Performance Management Director at Lloyd’s of London, warned that the market needs to “address its decline in underwriting performance because the current trend is not sustainable” in a recent speech.
Speaking to private or independent capital providers to the insurance and reinsurance market at the Association of Lloyd’s Members conference recently, Hancock explained that Lloyd’s needs to take steps to address profitability, as an unsustainable situation is developing.
Underwriting returns in the Lloyd’s re/insurance market have been on the wane, as it comes under increasing pressure from high levels of competition from global reinsurers, increasing competition from alternative reinsurance capital players and now threats from insurance technology (InsurTech) start-ups as well.
He explained to the audience of capital providers that the performance levels seen at Lloyd’s recently are “putting your capital at risk.”
Lloyd’s underwriting results had actually been improving since 200, but the last three year’s has seen a reduction in underwriting performance, as the effects of the softening and competitive market hit specialty insurance and reinsurance participants at Lloyd’s.
“The market needs to trade itself to better underwriting results – and only by making bold and brave business decisions will they achieve this,” Hancock explained.
He said that there are signs that Lloyd’s players are reacting to market conditions, pulling back on some lines and withdrawing from business that is unprofitable.
As a result Hancock expects a further reduction in premiums, saying that “This year, premiums must surely continue to reduce for performance to noticeably improve.”
“It’s good – and essential – that managing agents are making these tough decisions because we are entering a Darwinian environment where only the fittest will survive,” he continued.
He also hinted at increasing oversight at the syndicate level, to allay concerns “about the impact a few poorly performing syndicates can have on the overall results.”
“We will not allow syndicates to begin writing business we do not believe they have the capability to do, or where we have evidence the rest of the market cannot do successfully.
“This also means we will spend less time on the best performing syndicates which will allow managing agents more time to focus on running their businesses – and, of course, make your capital work harder for you. All of this will allow us to improve our oversight and make it easier for the market to do business with and within Lloyd’s,” he explained.
As returns have declined in insurance and reinsurance, it stands to reason that a market like Lloyd’s would put in place more rigorous means of ensuring that overall market performance is not put at risk by a few actors.
“Now, more than ever, these tough market conditions demand the greatest underwriting discipline from the market and the strongest oversight from us,” Hancock said.
“The conditions we are facing are tough – and we have to assume that this low interest, highly capitalised, competitive environment is here to stay. My team’s job is to make sure that we can help the market do what they do best: running their businesses and delivering growth that’s sustainable and profitable, and where performance dips – help them get back on track.
“Not only does that protect the central fund and our ability to pay claims, it will also maintain Lloyd’s reputation as an attractive place for capital providers like you to invest your money,” he closed.