Lloyd's of London will close down consistently unprofitable syndicates if they fail to submit a credible plan to reach profitability, the Insurance Insider has reported.
Lloyd's Performance Management Director Jon Hancock told the market in a presentation that syndicates that had been unprofitable for each of the last three years would have to submit a short-term plan to reach profitability in addition to a detailed three-year plan, and failure to produce a credible plan would result in closure, the publication said.
Citing sources, the Insider also reported that a letter had been sent to just over 20 syndicates in May threatening them with closure if they did not submit plans. It did not name the affected syndicates.
In addition, all syndicates, regardless of overall performance, will be asked to submit remediation plans for the worst-performing 10% of their portfolios, the Insider said.
A Lloyd's spokesman confirmed that Lloyd's had requested unprofitable syndicates to submit the short-term and three-year plans and all syndicates to submit plans for the worst-performing 10% of their business. He did not, however, confirm that Hancock had said troubled syndicates would face closure.
"We know that market conditions are challenging and that the market as a whole is evolving," the spokesman said. "Our focus is on a sustainable and profitable Lloyd's. This requires a balanced approach, which means addressing underperforming syndicates or lines of business while at the same time supporting profitable and innovative growth. Remediation plans for poor performing syndicates began last year and we have already seen syndicates pulling back from unprofitable business."
He added: "Overall we have adopted a risk-based approach to oversight. Those syndicates that are performing well should be free to pursue innovative growth, but syndicates who are performing worse than their peers can expect intervention from us."
'Generally supportive'
The push for improved syndicate performance comes after Lloyd's reported a £2 billion loss in 2017. The main cause was the spate of natural catastrophes that hit in the second half of 2017, but the market is concerned by its deteriorating underlying performance.
Its accident year loss ratio, excluding the impact of major claims, jumped by 5.6 percentage points to 58.9% in 2017 from 53.3% a year earlier. Lloyd's CFO John Parry told journalists after the Lloyd's results were released March 21 that "underlying performance clearly needs to improve" and that "remedial action needs to be taken."
Some have welcomed the tough stance on profitability being taken by Lloyd's.
David Gittings, CEO of Lloyd's underwriters' trade body the Lloyd's Market Association, told S&P Global Market Intelligence in an email: "I think the market is generally supportive of the focused steps Jon Hancock has asked managing agents to take in the face of the 2017 results. Lloyd's has weathered difficult times before and with some surgical intervention of the kind Jon is suggesting it will become stronger for the future."
