It looks like a Lloyd’s of London and Willis Towers Watson benchmarking study has cracked the code when it comes to remaining competitive in the London Market.
The joint research identified and used 72 attributes of portfolio management to create an overall performance index. The performance of participating Lloyd’s syndicates was also compared to their 2018 profitability to help establish the link between good portfolio management and the likelihood of delivering sustained underwriting profit.
It was found that the benchmarking study’s top quartile performers had on average a loss ratio of 56% and a combined operating ratio (COR) of 98%, while bottom quartile performers had a loss ratio of 65% and a COR of 106%. Across all Lloyd’s participants, the overall (weighted) average COR was 103%.
“We identified three strategic drivers impacting the London Market today – performance remediation, market modernisation, and culture, including skills needed in the future,” said Richard Clarkson, head of London Market consulting at Willis Towers Watson.
“Portfolio management is a critical capability that operates across all these drivers and will become even more important as insurers move to adopt new business models as the market modernises.”
In Clarkson’s view, the findings should benefit market participants by describing what constitutes a strong portfolio management capability, which may allow them to systematically fully understand and improve the performance and financial sustainability of the different parts of their businesses.
The attributes used in the study were grouped into 12 categories, six of which were determined as particularly significant for outperforming organisations that have successfully developed an effective portfolio management framework.
These are granularity, data and technology, limited reliance on spreadsheets, plan testing, speed, and people skills.
“Portfolio management supported by more accurate data makes a huge difference to today’s market,” added Clarkson.
“Until recently, this latest set of renewals would have seen blanket market pricing across various business lines versus what we have today, which is very specific pricing to each client depending on loss record, portfolio composition, strength of management team, and broader corporate relationships.”
Commenting on the study, Lloyd’s underwriting head Caroline Dunn asserted that first-class underwriting performance is a critical foundation upon which the strategy to build the world’s most advanced insurance marketplace is based.
“The highest underwriting standards are essential to protect customers, the market’s reputation, the central fund, and our credit rating, as well as ensuring the long-term sustainability of the Lloyd’s market,” she stated.
“Despite this, relatively few companies have looked in depth at what constitutes best-in-class portfolio management and what advantages there are to adopting best practice. This is particularly relevant for underwriting, where the roles are evolving to become more rounded, managing portfolios rather than being just single-class specialists.”
