Aon, a leading global professional services firm, yesterday released its report, "Lloyd's Update - Redefining the Future", which highlights that Lloyd's is at a pivotal moment in its evolution.
The “Future at Lloyd’s” initiative launched by Lloyd’s CEO John Neal may result in the biggest changes in the market since the Reconstruction and Renewal process of the mid-1990s, says Aon. Potential outcomes include separate placement methods for complex and standardised risk, easier entry to the market for high-performing innovative businesses, more flexibility in the way that capital participates, a next-generation claims service and the creation of an ‘ecosystem’ of data and services.
Mr Mike Van Slooten, the author of the report and head of business intelligence for Aon’s Reinsurance Solutions business, said: “Lloyd’s has had a challenging few years but I think John Neal is now building real consensus for change. 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. The key to success is bringing costs down. Technology can be an enabler in that area, but ultimately people and behaviours drive progress and that is why the inclusive approach offers the best chance of success.”
Back to profit in 2019
The market now awaits the blueprint for the ‘new Lloyd’s’, which will be published at the end of this month.
Much of the impetus for change stems from weak underlying operating performance. In particular, Lloyd’s is intent on making inroads into the market’s expense ratio, which has averaged around 40% over the last five years, a significant disadvantage relative to its comparator group.
Management expects the remediation plans now in place to bring the market back to profit in 2019, allowing for major losses equivalent to 9% of net premium earned.
Greater differentiation is being seen in Lloyd’s treatment of syndicates. Top-quartile performers now benefit from a ‘light touch’ regime, while loss-making businesses remain under pressure and subject to constraints. This has translated into in-market consolidation, which we expect to continue.
The Aon report says that Lloyd’s had no issues recapitalising after recent major losses and the Central Fund was not impacted by these events. Higher capital requirements and restrictions on the use of letters of credit are reducing capital efficiency, but the market’s partially mutualised structure continues to convey advantages.
Brexit
The likelihood of a ‘no-deal’ Brexit at 31 October 2019 has increased. Lloyd’s Brussels has been formed to ensure that customers across Europe can continue to access the market’s underwriting expertise and financial security, whatever the eventual outcome of the political process.