Lloyd's does not expect the Middle East conflict to be a capital event for the market, with current exposure and observed damages pointing to a manageable hit, a senior executive at the corporation has said.
The probable maximum loss impact is not expected to be material, said Rachel Turk (pictured above), chief of market performance, in a market message video, with a fuller update due alongside half-year results in September.
Turk said Lloyd's is weighing the insurance implications under de-escalation, elongation and escalation scenarios, with demand still being met through normal open-market underwriting.
Facilities and consortia are providing surge capacity for the expected pickup in vehicle traffic through the Strait of Hormuz, she added.
The work builds on Lloyd's earlier activation of its major event response group, which stress-tested syndicate books across aviation, marine, energy and political violence lines using its Realistic Disaster Scenarios framework.
Futureset research had warned that a hypothetical geopolitical conflict could expose the global economy to losses of $14.5 trillion over five years, with the Strait of Hormuz carrying more than 30% of the world's crude oil supply and 20% of global LNG.
The market is functioning as expected and is looking to contribute to a practical resolution of real-world impacts, including the management of secondary effects such as inflation and future economic risks, Turk said.
Chief actuary Mirjam Spies said geopolitical and macroeconomic risks remain a focus for Lloyd's, with the evolving Middle East situation carrying potential knock-on effects for the global economy.
Spies said Lloyd's expects these developments to feed into participants' assumptions, business plans and loss expectations.
Munich Re recently flagged manageable losses tied to the Middle East conflict as it posted first-quarter results, with chief financial officer Andrew Buchanan citing elevated economic and geopolitical uncertainty.
First-quarter performance held up against the Lloyd's plan, but Turk said renewals "were a little brutal" and rates are coming down faster than anticipated.
The level of rates is not the issue, but the pace of decline is, she said, combining with top-line pressure from outside the market to challenge underwriting discipline.
Turk said Lloyd's needs to adjust its oversight as the industry moves into a softer market, drawing a parallel with conditions a decade ago, when discipline faltered despite the efforts of a handful of underwriters.
"We need to avoid history repeating itself," Turk said.
Performance adequacy for 2027 is under threat without the right actions, she said, adding that the top line will have to shrink in a softening market.
Three lines of business are under particular strain. Property has been profitable but only because of low catastrophe losses, with key upcoming US renewals potentially facing a second consecutive year of aggressive rate cuts, and inflation weighing on building materials and oil-linked costs.
Cyber and marine are also being closely watched, with Middle East tensions, large US liability judgments and the rise of artificial intelligence adding fresh dimensions to underwriting risk.
Turk said she is comfortable "calling time" on new entrants setting up syndicates simply to access business already at Lloyd's, describing such plans as neither credible nor achievable.
