Challenges confront Lloyd’s despite progress – report

Internal and external challenges facing Lloyd’s of London remain concerns for the world’s largest insurance market, despite its positive trajectory in performance, market reform and return to profitability in 2021, according to a report by Gallagher Re.

Uncertainties caused by the broader inflationary environment, natural catastrophe losses, and Russia’s invasion of Ukraine as well as their potential impact, on the external side – combined with the formulation and implementation of ESG strategies, and other Lloyd’s initiatives including digitisation and modernisation on the internal side – are all key priorities and factors that could frustrate the positive trajectory of the market.

However, examination of various multi-year metrics in Gallagher Re’s first annual Lloyd’s of London Market Report demonstrates that efforts to improve the sustainability and credibility of the Lloyd’s market are bearing fruit. Analysis of the distribution of individual syndicate underwriting performance found not only that the majority achieved a sub 100% combined ratio in 2021 but also that the general spread of performance across the market – viewed over 10 years – has narrowed and shifted toward a profitable result versus previous years.

Similarly, by viewing the breakdown of Lloyd’s profit and loss since 2011, analysis highlights a period of recent volatility and increased risk, but most notably the marked turnaround in underwriting performance in spite of reduced investment returns.

Tom Wakefield, UK CEO of Gallagher Re, said: “Lloyd’s made great progress in 2021, particularly in view of the natural catastrophe burden that hit the market. A relentless effort to improve syndicates’ performance has led to satisfactory results, which bolster the market’s sustainability and its credibility. Lloyd’s steadily decreasing attritional loss ratio points to the positive performance impact of portfolio remediation and rate increases. Challenges remain, though. Maintaining or even stabilising the positive trajectory in 2022 will be frustrated especially by intensifying inflationary pressures and their impacts.

“That said, we see a level of momentum not just in underwriting performance, but also in market reform measures, which have taken a big step forward through the agreement this year of a data standard for electronic trading. Lloyd’s remains a market which we will promote to our clients as resilient, innovative, and strong.”

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