The marketplace says it expects current conditions to put ‘upward pressure on profitability, not GWP’

Current market conditions at Lloyd’s of London can create “a lot of opportunities” – despite fears from syndicates over premium projections, according to Lloyd’s chief of markets Patrick Tiernan.

Speaking during a quarter one media briefing on 9 March 2023, Tiernan explained that Lloyd’s remained locked in discussions with managing agents and syndicates after some sought to resubmit their business plans in the wake of the withdrawal of reinsurance capacity at the 1 January 2023 renewals.

While unwilling to go into detail on the number of syndicates that looked at changing their forecasts, Tiernan was firm that those which feared their premium projections were wide of the mark needed to contact Lloyd’s as a matter of urgency.

He said: “Clearly, we have seen some syndicates resubmit with renewed expectations based on value and rates.

“The guiding principle in the market is that the predicted rate is a floor, not a target.

“If you are going to miss it, get back in touch.”

Tiernan additionally stressed the need for Lloyd’s syndicates to focus on performance and understanding aggregated exposures, rather than being solely concentrated on gross written premiums (GWP).

“The majority of resubmissions should be positive, not negative,” he continued.

“The market continues to have strong conditions with a lot of opportunities.

“We expect those conditions to put upward pressure on profitability, not GWP.”

Future focused

Tiernan identified the directors’ and officers’ (D&O) and property markets as ones where there had been the most pricing movements in Q1 2023, with pandemic-related delays to court rulings - particularly in the United States - causing difficulties for managing agents operating from Lloyd’s.

Lloyd’s has also taken a tough line with syndicates on the use of property binders - a decision Tiernan said was down to current performance and the future outlook of this product.

“We have had some pushback from the market around property binders,” he explained.

“We think long and hard before we make any commentary. We will respond to things which are systemically or structurally not working.

“When it comes to property binders, structurally we want to ensure that intentions are aligned across the distribution chain.

“Performance wise it is not good enough. Yes, they can point to a 91.9% combined ratio, but our role is to look to the future.

“We need to look at the trends and where they may take the business in five to six years.”

Ensuring profitability and performance

The key takeaway Tiernan wanted to share at last week’s briefing was around the market’s profitability and ensuring that existing progress here was not paused due to poor risk and pricing decisions.

“If we lose those gains, they will be very difficult to get back,” he said.

“We do not want to be in a position where we have to make a volte-face following a major event. Performance is our biggest concern and it will remain so.”

Considering if rising interest rates and the opportunity for underwriters to deliver a better return on investment had enabled flexibility in pricing, Tiernan said: “Despite the better investment rate environment, we won’t lessen our focus on underwriting performance.

“It might have been a case in the past when rates were 18%, but 4% does not cut it.”