“Our overarching goal is to facilitate the Lloyd’s market to be the preeminent corporate and specialty insurance and reinsurance market in the world.” That’s how Patrick Tiernan, Lloyd’s chief of markets, introduced the Lloyd’s 2022 capital plans.
“In reviewing our 2022 plans, we were seeking to ensure that the outcomes of the capital and planning process both build towards the long-term vision for our market, and are anchored by the prevailing market conditions,” he said. “I’m satisfied we’ve got the balance right for 2022. If we continue to work to remove structural obstacles, I see a myriad of opportunities to leverage the unique advantages of Lloyd’s.”
For the past few years, Lloyd’s has been hyper-focused on improving its underlying performance and restoring profitability. In 2018, the market launched its ‘Decile 10’ initiative, aimed at bringing underperforming syndicates and classes of business back to profitability. Failure to reduce expenses and bring underperforming syndicates and classes of business back to profitability would result in plans being rejected and classes of business and syndicates being closed down.
This will continue to be a core focus for the London market in 2022, Tiernan stressed. He said: “Performance has to remain. It’s our number one priority, and the basis of our stability as a market. The plans that you [the Lloyd’s syndicates, MGAs etc.] submit are the plans that you’re capitalized against, and therefore are the plans that we expect you to deliver.”
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Underperforming syndicates that just cleared the Lloyd’s 2022 Capital and Planning Group (CPG) eligibility bar were not subject to a common clearing height, Tiernan explained. Those with less room to maneuver in their plans will be subject to the milestones agreed with the CPG team. They will also face quarterly reviews to ensure there is no sustained underperformance.
“When it comes to our top performing syndicates, historically your prize for being light touch was to be left alone by Lloyd’s,” said Tiernan. “But we have so many unique advantages in our market, including consortia building, convening power, syndication, and innovation, where we could provide more support. As we demand more of you, you should demand more of us. We want to engage positively with you to realize the opportunities you see, or to share with you the opportunities that come into the corporation.
“For all market participants, I truly hope that you start to feel our ambition more powerfully in 2022. And no matter where you sit in the insurance chain or geographically, Lloyd’s will always be a key strategic partner in your customer delivery and capital return strategies.”
Tiernan shared several key areas that Lloyd’s will continue to focus on through 2022. Firstly, the market will focus on delegated authority business – which has seen significant growth in the Lloyd’s market in recent years – in particular, looking at underwriting quality and cost structures. From an underwriting perspective, Tiernan said the focus will be on the standards of technical information reviewed, the quality of the exposure data, terms and conditions, exclusions, and casualty binders, among other things.
“From a cost perspective, there are three lenses through which we will look at our delegated authority books,” he added. “One - does the cost structure ensure alignment of interests, particularly when it comes to the blend of fixed versus variable commissions? Two - is the business coming to Lloyd’s in the most efficient manner? Three - as we move to a principle-based oversight, is Lloyd’s’ oversight of the managing agents cost-effective? We need to tackle these areas in order to continue to support the ongoing profitable growth in delegated authority business at Lloyd’s.”
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Another big area of focus is on expenses – where Tiernan said the market has “under-delivered” of late. In 2022, Lloyd’s has committed to improving the transparency of the cost of underwriting business on the Lloyd’s platform.
“Through clear definitions, we will gather data which will enable us to target our expense base in four ways: to compete away poor value in the distribution chain, to remove any shadow of Lloyd’s that might be contributing to costs, to allow managing agents to see operating expense benchmark data, and, of course, to deliver the benefits of Future at Lloyd’s to the market,” Tiernan explained.
The Lloyd’s market will also continue to focus on environmental, social, and governance (ESG) initiatives in the coming year. The chief of markets said the corporation’s strategy is to “ensure the transition”.
“2022 will be dominated by the design of measurement frameworks and syndicates’ sustainable commitments to meet net zero by 2050,” said Tiernan. “Syndicates will be required to submit their ESG strategies as part of the 2023 business planning process. We do recognize that managing agents may be at different stages of maturity, depending on their size and sophistication, in the development of these strategies. Therefore, we will commit to helping syndicates understand what our minimum expectations are.”
Finally, Lloyd’s is just months away from fully implementing its Lloyd’s Europe (LIC in Brussels) operating model to enable continued service to the market’s European customers. Once full implementation is reached by April 1, 2022, Tiernan said the market’s focus will change to becoming “highly valued partners to customers, policymakers and regulators in the EU”.
Tiernan summarized that there are several key takeaways for Lloyd’s market participants to focus on in 2022.
“Firstly, our relentless focus on performance is driven by our desire to facilitate this market to be best-in-class. Our growth and our future depend on sustained profitability,” he said. “Secondly, this market will thrive if we get all of this right […] and there’s a huge amount of opportunity out there for those who are hungry and skilled enough to take advantage.
“Thirdly, the market and macro conditions point to significant upward rate pressure in our largest markets. As a result, you must price in inflation. We do not want to give up the progress made in the last three years. Fourthly, we will continue to raise the bar through the lens of performance capital, solvency and operational effectiveness. Lastly, implementation of the principles-based oversight is a great signal of the maturing of our market, and will result in Lloyd’s showcasing the highest standards globally.
“Our role is to provide the conditions for a competitive successful marketplace to flourish. We’ll continue to listen to what the market needs and remove the rocks in the road to allow you to deliver on your strategic goals and return requirements. We will continue to advocate for our market and seek new strategic opportunities. And we will not stand still. No individual team, business or market will maintain top quartile performance without a relentless focus on improvement. That’s how it’s got to be.”