Lloyd’s Tiernan urges caution despite record 2023 underwriting profits

Lloyd’s chief of markets Patrick Tiernan has warned against complacency following Lloyd’s strongest market-wide underwriting result since 2006.

In a trading update for its full year 2023 financial performance yesterday (7 March 2024), Lloyd’s revealed that its underwriting profit increased by £3.3bn billion to reach £5.9bn.

Speaking during the Q1 2024 market message presentation at Lloyd’s yesterday, Tiernan explained that there was a need for “discipline and considered expansion.”

Lloyd’s chief financial officer Burkhard Keese added: “Despite the stellar underwriting conditions, very little fresh capital flowed into the insurance and alternative asset markets and many promising capital raising initiatives had to be abandoned last year.

“Without any doubt, we must deliver adequate returns, which we obviously didn’t do over the last five to seven years.

“Investors will expect them to be able to earn back losses, therefore, price adequacy and embedding the lessons-learned is key.”

Capital trust

Keese noted that a single positive year alone will not be enough to regain the confidence of capital.

Instead, he said that both the insurance and reinsurance market must enhance their service offerings to institutional investors in order to be truly appealing to them.

He continued: “Complete transparency of fully-modelled and validated risk-return profiles are requested by most of our institutional investors and their investment committees.

“Track records are also needed.”

However, this is why Lloyd’s have created the Exceedance Probability (EP) curves for the Lloyds market.

Keese explained that the EP curves “represent the probability of profitability and tells the Lloyd’s story in a quantitative way and this story is a really good one”.

This is a good initiative that will help investors better-understand what a capital allocation to Lloyd’s can deliver them, enhancing transparency around the market’s performance across key lines of business, explained Keese.

He added: “In summary, discipline and transparency must be maintained to deliver value to our investors and we must become more transparent.

“This will ensure that capital flows to the best and most disciplined underwriters.”