Home / International / Pressure on underperformers to drive more consolidation: Lloyd’s
9 September 2019
In-market consolidation of syndicates in the Lloyd’s market is expected to continue as it maintains pressure and constraints on loss-making business, according to a new Aon report.
It says Lloyd’s will also reject business plans that don’t contemplate reduced costs this year.
Managing agents must now produce detailed plans to return unprofitable or underperforming syndicates to profitability over the near term or face closure.
Underwriting capacity has dropped 4% to £30.9 billion ($55.89 billion) this year as a result, and £3 billion ($5.43 billion) of underperforming businesses have left the market. However, Lloyd’s is encouraging £7 billion ($12.66 billion) of new growth in cyber insurance and the sharing economy.
Aon’s analysis shows that 26 syndicates have reported underwriting losses for the past three years. Thirteen other syndicates have posted losses for the past four years, and seven syndicates for the past five.
Aon says Lloyd’s is making clear that its different treatment of profitable versus underperforming syndicates will be ramped up, with a “light touch” pilot oversight regime implemented recently for the better-performing syndicates.
Gross written premiums (GWP) reached £35.5 billion ($64.21 billion) last year, and increasing premium volumes are coming from overseas via delegated underwriting authority arrangements, the report says. North America now accounts for 50% of GWP, while premium growth in Europe is being hampered by Brexit.
Its efforts to develop a 25% premium share from emerging markets by 2025 is not bearing fruit, with lower costs, preferences for local products and growing protectionism hindering progress. Lloyd’s short-term focus has shifted back to existing markets as a result.
Aon says Lloyd’s will release a blueprint for the Future at Lloyd’s at the end of the month. Its six initiatives include a complex risk platform, a risk exchange for automated and low-cost insurance, an insurance risks platform, easy access to underwriting innovative products, a next-gen claims service and a services ecosystem.
It will prioritise the complex risk platform and the claims services to be operational early next year.
The risk exchange should allow a broker to place a risk from anywhere in the world, with options, price quoting and binding, and the complex risk platform will support face-to-face negotiations.
Lloyd’s hopes the initiatives will cut acquisition and administration costs for the most common risks to 10-20% within five years.
The market will also divide lead and following markets to underpin the plan, hoping it will foster an underwriting community to boost its reputation for innovative insurance products.
Lloyd’s lost £1 billion ($1.81 billion) before tax last year and £2 billion ($3.62 billion) in 2017 after natural catastrophes spiked.
“Lloyd’s retains core strengths, but it is increasingly recognised that structural issues must now be addressed to allow them to come to the fore in today’s global marketplace,” according to Mike Van Slooten, Head of Business Intelligence for Aon’s Reinsurance Solutions business.
“The key to success is bringing costs down.”