5th June 2017
Lloyd’s performance management director Jon Hancock has said he expects the market to shrink for the next two years, as the Corporation takes a tough stance on underperforming lines of business.
Speaking at the Association of Lloyd’s Members national conference yesterday, Hancock said the market needed to change what it is doing to improve underwriting results.
“I expect the market to shrink this year and to shrink next year,” he said. “Premiums must surely reduce if performance is going to notably improve. Doing the same just cannot be an option for syndicates and portfolios which are underperforming.”
Doing more of the same can only be an option “if you are performing really well or outperforming the market”, Hancock added. “The market cannot simply grow exposures to maintain premium.”
Lloyd’s does expect some syndicates to grow, but only if they are doing something different, the executive added.
“That could mean a new product, a new proposition, a new acquisition or a new footprint. We will support those profitable sustainable plans. But overall, we expect the market to shrink in these competitive conditions,” he said.
Monitoring market growth is one of five key areas the Lloyd’s performance management team is focusing on to turn around the market’s results, with accident-year loss ratios in all segments running above 100 percent.
Other areas of focus include catastrophe exposures, facilities, operating expenses and acquisition costs.
Lloyd’s typically writes 8 percent less premium than its allotted stamp capacity for the year, the executive explained. In 2016, the market wrote 12 percent less than its stamp.
“That is a good sign of some discipline,” Hancock said. “It is good – it is essential, in fact – that managing agents are making those tough decisions.
“We are entering a Darwinian phase where only the fittest will survive.”
Some in the market believe that Lloyd’s needs to see some failures, and record large losses, in order to maintain the health of the overall market.
When questioned on his viewpoint, Hancock said Lloyd’s had a duty to ensure the market does not enter a period of sustained losses or low returns.
“That has an impact on reputation, on the Central Fund, on credit ratings etc,” he said. “Syndicates need to stand on their own two feet. The weakest won’t.
“We need to put a really safe environment around [the weakest syndicates] so that policyholders, the Central Fund and the mutuality of Lloyd’s is protected.”
The Corporation is enforcing a risk-based approach to its market oversight, and will focus its attention largely on underperforming syndicates.
“I can assure you that a new risk-based approach means we identify poor performers much earlier,” Hancock said. “We can intervene much faster and harder when we need to.”
Lloyd’s will restrict or remove authority when syndicates start to underperform or diverge from their approved business plans, he continued.
“We will not allow syndicates to begin writing business we don’t believe they have the capability to, or where we have evidence that the market just cannot write it successfully,” he added.
“This also means we will spend less time on the best performers, so they have more time to focus on running their businesses. We will leave them to work harder for their returns.”
