Speaking at the Lloyd’s Q4 2024 Market Message, Patrick Tiernan, Chief of Markets, explained that whilst looking at the jump off point for 2025, he sees a “global specialty market that continues to experience favourable, if not, more competitive conditions.”
Tiernan stated that the risk environment remains elevated within Lloyd’s core markets, whilst with heightened risk, customer demand continues to expand.
“Material inflows of capital are primarily from reinvested earnings, and as a result our central assumption is that market fundamentals will not alter materially in the first half of 2025, absent external shocks,” he said.
In addition, whilst 2024 forecast results appear to be achieving target returns on capital metrics, it is against a moderate large loss and cat year from most.
“Our cumulative, final net loss estimates for hurricane’s Helene and Milton are between US $1.8 billion to $3.4 billion, and I expect us to trend towards the lower end of that range,” Tiernan added.
In comparison, Lloyd’s estimated losses from 2022’s hurricane Ian at £2 billion, so it’s possible that combined losses from Helene and Milton amount to less than the Lloyd’s market’s loss from Ian.
Interestingly, Tiernan stated that he is more cautious about the market than he was 12 months ago, citing rate momentum, adequacy and aggressive trading challenges, which are ultimately pressuring sustainable growth in property, casualty and speciality, respectively.
Providing some colour, Tiernan said: “In property, we are not seeing any notable changes to attachment points or terms and conditions. Our current expectation is that the positive risk adjusted rate change seen in property treaty during 2024 will be at least flat in 2025, driven by loss impacted lower layers and increased demand.
“Direct and facultative property is more of a mixed bag. We welcomed the discipline shown by Lloyd’s underwriters in the face of rate pressure driven by the return of U.S domestic markets. But risk adjusted rate change in D&F year-to-date, while remaining positive, we did begin to see an open market turn negative in Q3 pre-Helene and Milton. So, our expectation for 2025 is that the North Atlantic hurricane activity, will ameliorate any broad-based D&F property rating pressures.”
Moving over to casualty, in the Lloyd’s US general liability book, there continues to be line size compression with average line sizes down to about $1 million, according to Tiernan.
Adding: “Prior year reserve deterioration, and settlement driven claims inflation in our view is not yet being adequately reflected in pricing structure or terms. So, we believe the market is yet to establish a clearly adequate baseline and we will require syndicate’s to demonstrate a robust underwriting approach in this class.”
As for specialty, Tiernan explained that the major issues are either prospective or due to placement dynamics.
“We are watching some of the more erotic trading on the fringes, this is mostly outside of Lloyd’s, so we will hold our council unless or until there’s any contagion to where we have material market shares.”
Turning attention to 2025, Tiernan noted that the level plan approved by Lloyd’s shows a gross written premium (GWP) of £65.5 billion, As well as this, the market level net combined ratio continues to “comfortably” beat Lloyd’s sub 95% benchmark, with expected profitability and returns sitting just slightly lower than the 2024 plan.
