Moderating market conditions are presenting fresh challenges for Lloyd’s, which has turned around its performance with a focus on underwriting discipline after some difficult years. 

Lloyd’s has previously dismissed talk of a swing into a soft market, but sentiment has shifted and it has warned underwriting syndicates it won’t tolerate underperformance. 

Chief underwriting officer Rachel Turk says the market is best described as “fragile”, with little consistency of views from managing agents around rating and adequacy.

“Syndicates are experiencing different conditions depending on their market position, appetite or portfolio construction, but talks of rates being down 10%-15% is apocryphal,” she said.

While true in some loss-impacted business, the reality is that at a whole-account level, risk-adjusted rate changes in the first quarter were down 3.3%, she says in a market message.

“This isn’t terrible, but it is below plan. However, one thing is crystal clear and that is that sentiment has shifted and is becoming more negative.”

The plan for the 2025 underwriting year now estimates gross written premium nearer £60 billion ($124 billion), compared with £66 billion ($137 billion) initially.

Last decade, Lloyd’s took a tough line with syndicates to ensure the performance of their individual plans, with the “decile 10” program enacted during a difficult period to target laggards. The planning process remains critical.

“We will not support plans that are retaining top-line growth aspirations and not reflecting the true impact of the rating environment on the bottom line,” Ms Turk said. “We remain at a critical juncture where disciplined portfolio optimisation and a healthy dose of realism is of paramount importance.”

Ms Turk says Lloyd’s isn’t “risk off” but is “risk aware”, and its focus will include heightened scrutiny of delegated arrangements, while examination of costs is also key to preventing erosion of underwriting margins. 

“Good cycle management is a requirement and we expect to see tangible evidence of this in plans,” she said.

CFO Alexandra Cliff stresses that Lloyd’s financial position is among the strongest it has had, and it provides a foundation that must be protected in navigating the period ahead, which may involve prolonged instability.

“The risk environment is highly uncertain and our balance sheet must reflect that uncertainty across underwriting, claims, capital and reserving,” she said in the market message. 

Lloyd’s GWP rose 6.5% to £55.5 billion ($115 billion) last calendar year. It reported a pre-tax profit of £9.6 billion ($22 billion), down from £10.7 billion ($22 billion) a year earlier.  

In 2018, it posted a pre-tax loss of £1 billion ($2.1 billion) as it was hit by natural catastrophes while strengthening performance management measures as it pursued a financial turnaround.

Chief of markets and incoming CEO Patrick Tiernan says the past four years have been dominated by disciplined growth, which has delivered a more resilient, focused and “fundamentally stronger” marketplace, and he warns of the need to continue those efforts.

“Lloyd’s incredible array of advantages for all stakeholders are reduced to a net negative if our underwriting performance, our cost base or our balance sheet stability slides,” he said.

Mr Tiernan says the benefits Lloyd’s offers are of increased significance and strategic value in the current environment.

“We expect syndicates to be considering and monitoring the economic outlook, shifts in trade relationships, the potential for geopolitical conflict and how all these facts are interacting with each other,” he said. “We remain fully supportive of the market expanding where it has advantage or it has sustainable margin.”

Mr Tiernan will take Lloyd’s top job in a few weeks, and his expectations have been made clear from the start amid challenges facing the insurance sector and the marketplace.