The probability of syndicate closures in the wake of Lloyd’s of London’s threat to those that are underperforming is “pretty low,” says Lloyd & Partners.
Jon Hancock, performance management director at Lloyd’s of London, issued a warning earlier this year that “consistently loss-making syndicates” – defined as those that have made a loss for the last three years consecutively – would be under close watch.
The unprofitable syndicates were told to present a remediation plan for their respective returns to profitability in the near-term, with the threat of closure for those that fail to do so.
Additionally, all syndicates were asked to submit plans for their bottom decile classes, the worst-performing 10% of their business.
Lloyd & Partners, JLT’s branded division dealing with the wholesale market, described the move led by Hancock as an “unprecedented intervention.”
“Previously, the perception was that Lloyd’s was more concerned with operations, etc. This is the first time we’ve seen them be involved in underwriting controls, pricing, exposure management,” Paul Cumberland said at an MGAA briefing in London. “If these syndicates don’t present a credible plan to return to profitability in the near-term, Lloyd’s is saying they are going to place those syndicates into run-off – quite strong stuff,” he went on to say.
The move comes as Lloyd’s of London faces what its outgoing CEO Inga Beale has described as “challenging conditions,” including an underwriting loss in 2017 of £3.4 billion (around NZ$6.78 billion).
It also has cause to worry about a potential ratings downgrade, according to Cumberland.
“Sitting in the background, we have what we think is a bit of a threat of a ratings downgrade. Last year, Fitch and Standard & Poor’s put Lloyd’s on a negative watch. Lloyd’s is obviously very keen to avoid any further movement in that department,” he commented.
Lloyd & Partners said it expects the situation to “crystallise” within the next couple of months as syndicates file their plans – but said while closures could happen, they are unlikely.
“There might be some closed syndicates,” Cumberland said, but added that the probability was “pretty low.”
In July, S&P Global said that it had interviewed CEOs in the market and found that most “broadly welcomed the crackdown.”