Lloyd's of London to beef up 2023 business planning process

Lloyd's of London will change its business planning process in 2023 in a bid to close the gap between the planned and actual results of the market's syndicates.

"We want to ensure a full understanding of the volatility around profitability and we want to increase the robustness of plans," Patrick Tiernan, Lloyd's chief of markets, said on a webinar.

More stringent measures may have little or no impact on many syndicates, but Lloyd's hopes they will make sure stronger ones are not being "held back by the weakest in the herd," Tiernan said.

Changes to the planning process include new requirements for syndicates to show how they derive expected losses from loss ratios envisioned by actuaries and for them to provide details on the sources of their growth.

Lloyd's envisions a cut in the market's expense ratio to 35.9% from 36.3% for 2022, but Tiernan said more work was required to show that Lloyd's was closing the gap with non-Lloyd's peers on expenses.

Syndicate goals in the coming year

Syndicate business plans for 2022 envision a 14.7% growth in gross written premium at Lloyd's to £43.7 billion. Lloyd's is targeting a combined ratio, which measures non-life underwriting performance, of less than 95% for the marketplace. Tiernan said Lloyd's had allowed net growth in exposure for the first time in four years, as previous remediation work ensured that the market was positioned for sustainable, profitable growth despite elevated catastrophe activity in the third and fourth quarters.

The expected growth is driven by syndicates subject to light-touch and standard oversight by Lloyd's, which have planned increases in gross written premium of 16% and 13%, respectively. Those subject to high-touch oversight, typically the worst performers, expect to grow gross written premium by 7%. Poor performers' share of the Lloyd's market has fallen by more than 10%, Tiernan added.

The 2022 plans envisage lower risk-adjusted price increases than 2021, but they should be viewed as a floor, not a target, Tiernan said, especially in light of more challenging inflation trends. The consequences of getting pricing wrong in this environment "are severe for future reserving adequacy," the Lloyd's market chief said, urging syndicates to price inflation into their rates.

"We do not want to give up the progress made in the last three years," Tiernan said.