At a recent MGAA event on the Future at Lloyd’s and what it means for coverholders, head of policyholder and third party oversight at Lloyd’s, Paul Brady, provided an update on the initiative and insight into the continued focus on market performance within Lloyd’s. When he first stepped into his role in 2017, Brady said, he spoke at an MGAA event about the need to focus on improving oversights, promoting efficiency and working in partnership with the coverholder community.
“While a huge amount has happened in those three years,” he said, “our focus has always been around those things.”
Lloyd’s has three areas of focus which are priorities for 2020, Brady outlined: underwriting performance, strategy, and culture and people. Everything begins and ends with performance, Brady said. He detailed how the recruitment search for performance management director, Jon Hancock’s replacement has already begun following Hancock’s announcement that he will be stepping down in 2020.
While whoever takes on the role will undoubtedly want to put their own stamp on things, Brady said, he repeated the commitment of Lloyd’s CEO John Neal that any successor will be continuing the work that Hancock has started. This means a continued focus on the worst-performing Lloyd’s businesses, the ‘Decile 10’, he said, but also ensuring that a lighter touch approach is taken with the best performers.
“First-class underwriting performance, as John Neal says, is the foundation of everything that we do,” Brady said. “And we’re going to keep up a relentless focus on ensuring underwriting continues to improve.”
Contrary to the rumours he sometimes hears, however, Brady said this does not mean that Lloyd’s is closed for new delegated authority business. Although a few syndicates have gone into runoff recently, he said, these are businesses that were not making a profit for several years and, thus, were dragging down the results of the Lloyd’s market as a whole.
“Our tougher approach to poorly performing business is, we believe, entirely the right one,” Brady said, “and I think that’s been proved by the fact that we’ve seen other insurers following Lloyd’s example over the last two years and making a concerted effort themselves to drive out unsustainable business.”
Brady recognises that the way some binders have been exited has been very sudden in certain cases and that this has been challenging for the coverholders affected. His view is very clear, he said - binding authorities that have a track record of profitability will always find a home at Lloyd’s. To ensure the long-term success and viability of the market, however, performance must continue to be pushed front and centre.
“There is simply no avoiding the hard truth that tough decisions will need to continue to be made by our managing agents as they manage their portfolios,” he said. “This inevitably may mean that some coverholders find the binders aren’t renewed if they’re not performing well, or they might face changes in their capacity.”
In extreme cases, he said, this could even mean that binders are being cancelled before term, but Brady stated his expectation that syndicates will honour their contractual commitments, and only issue early cancellation in line with those contractual terms. And even then, he said, they should only be doing so in the most exceptional circumstances.
It will be incredibly unusual for Lloyd’s to insist that a binder is cancelled prior to expiry,” he said, “and really only if there was material misconduct or if it imposed a significant prudential concern.”
When a managing agent decides not to renew a binder, Brady stated, it is important that they work with the coverholder community and brokers to manage an orderly transfer or run-off of the binder. This involves making sure that contractual provisions are met as well as regulatory rules and expectations, he said. To help with this, he said, Lloyd’s is working on the termination clauses in the binding authority group with the LMA to make sure they are appropriate and fair for all.
“More widely,” he said, “I would expect our managing agents to discuss the position with coverholders at the very earliest opportunity to ensure that any impact on policyholders can be properly managed. What we all need to try to avoid is surprises - bad news never gets any better by delaying giving that news.”
Lloyd’s is looking to the future, Brady outlined, and wants to see business in the market which is sustainable, innovative and profitable, and this is the type of business approved in its 2020 business planning cycle, which has set aside £7 billion for new business. Fundamentally the message of Lloyd’s, he said, is that is it very much open for business, but not just any old business.
