The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) have launched a consultation proposing measures to boost diversity and inclusion to support healthy work cultures, reduce groupthink and unlock talent.

Surging wage inflation is an increasingly pressing concern for insurance and broking executives in the London market, with competition to hire and retain top talent threatening to dent profitability at the same time as rating increases begin to tail off.

Numerous sources from across the London market said that staff costs had rocketed over the past year, with the combination of hardening market conditions, the broking “supercycle”, start-ups looking to hire top talent and macroeconomic pressures all combining to hike staff costs.

The sums required to hire the best brokers and underwriters has been variously described to this publication as “out of control” and “crackers”, with the situation most pronounced in strained lines of business where staff movement has been exceptionally high, such as D&O and reinsurance.

Given that most companies across the market are in growth mode, management is faced with the simultaneous challenge of hiring for new roles while defending their existing staff base.

“All of us are all both poacher and gamekeeper,” one London market CEO observed.

While it is difficult to put a precise figure on the wage changes – not least because of varying compensation structures in the market – sources estimated that wage cost inflation was running at between 10%-20%.

This is skewed by the pay rewards on offer for staff moving between firms, with 50% pay rises a common occurrence for those taking on new roles or taking counteroffers, while base pay increases are generally single percentage figures for existing staff.

All of us are all both poacher and gamekeeper

(Re)insurance is not alone in experiencing an inflationary environment for staff costs, with demographic and macroeconomic factors, exacerbated by the pandemic, leading to wage inflation across a host of industries, with pronounced changes in financial services such as law and banking.

The situation in (re)insurance is exacerbated by the sector-specific drivers outlined above.

Market anecdotes abound of offers and counteroffers, lucrative joining bonuses and companies “throwing money around” to hire.

In one scenario, sources told of an underwriter offered a pay increase from £90,000 to £200,000 to move to a large broker, eventually remaining at the existing employer for a salary of around £170,000. Such stories are common.

Wage inflation has been most dramatic in the broking market, as intermediaries look to hire quickly and capitalise on highly attractive trading conditions, where rising insurance prices and GDP growth have led to a spell of bumper broker earnings dubbed the broking “supercycle”.

“When you are in a situation where you haven’t got enough people to service your clients, and you are making a lot of money, then you throw money at it,” one source observed.

Additionally, consolidation in the broker market and the hunger of challenger intermediaries such as Lockton Re, Howden and McGill and Partners has disrupted the market, with expanding operations offering lucrative pay deals to secure top brokers or teams.

Margins impact

Executives at carriers bemoaned a “dearth of talent” for the roles they are looking to fill, with insurers willing to pay a premium for those that meet expectations.

Sources estimated that the increased wage costs seen in the past year could add around 60 basis points to a combined ratio, while at brokers, wages are understood to have a more material impact on profitability, with remuneration expenses accounting for a larger portion of the cost base for intermediaries.

Across the major brokers the cost of staff has largely reduced as a proportion of revenues in 2021, although this could in part be down to the double-digit revenue growth the brokers have enjoyed over the past year.

There are, of course, pros and cons to paying out significant sums to bring in broker talent. As sister publication Inside P&C has explored, broking sources believe team lifts in particular when executed well can deliver the highest returns, particularly judged on a cash basis. (See the full analysis of the team lift model on Inside P&C here.)

Team lifts in numbers II Red.jpg

In underwriting, some business leaders stressed that the rising cost of securing key talent was largely justified on business grounds, with the potential gains from a profitable, loss-free book dwarfing the sums of a salary increase.

However, as the costing landscape begins to transition, with the possibility of flatlining or declining rates in some classes of business, sources warned of a hangover effect on profitability caused by the wage deals that have been agreed at the height of the pricing frenzy.

In particular, there is a shortage of underwriters with the ability to move business, meaning bumper deals for those that can.

Also, technical back-room staff have seen wage increases far greater than in previous hard market cycles.

Such wage increases, it was suggested, were sustainable amid hard market conditions, but retaining such upwards momentum would be untenable.

Sources speculated that 2022 would continue to see wage inflation in classes which remained distressed, but a more benign pricing environment in other lines would lead to a correspondent cooling in the hiring market, although macroeconomic factors were likely to keep up the pressure to up pay.

Analyst questioning at the brokers

Analysts are watching the situation closely at the large publicly listed brokers, with Marsh McLennan CEO Dan Glaser repeatedly quizzed on the subject after the broker reported its Q4 results last week.

The operating margin at the broker reduced by 90 bps to 20.4% in Q4, reflecting “significant investments in the business”.

The executive said that the broker, which has hired over 5,000 staff in the past year, was “very wary” about wage inflation, but confident that rising expenses were being balanced out by strong revenue growth.

Aon CFO Christa Davies said in the broker’s earnings call last week that she expected to see wage inflation into 2022, but it would be offset by other improving efficiencies at the business.

On a conference call with Brown & Brown investors, CEO Powell Brown also said his firm was “absolutely encountering wage inflation”.

The CEO said the impact of wage inflation had not shown up in a meaningful way in Q4 but added: “We are absolutely subject to the pressures of it that anybody else right now is.

“I think that I’ve read recently that we’re in a somewhere between a 30- to 40-year low in terms of labour shortage across all industries. And I’m not going to say that’s indicative exclusively of our industry, but I’m saying the industry hasn’t done a very good job of reinvesting in the teams that are there.”

Driving factors

Sources stressed that wage dynamics at play in the market were shadowing those of previous market cycles, with improved underwriting conditions inevitably adding inflationary pressure to wages.

On top of that, the amount of private equity capital entering the insurance arena and the bumper valuations placed on brokers and MGAs in M&A deals was having a trickle-down effect on staff income.

“The result is that some MGAs are throwing money around like it’s confetti,” one source said.

There is a marked difference in approach between businesses, with big brokers and some start-up underwriters most willing to offer bumper pay deals, while other established underwriting shops are said to be “playing a long game” and allowing some level of staff attrition as a result, and others counteroffering to retain talent.

Some MGAs are throwing money around like its confetti

In reinsurance, the situation is said to be “ridiculous”, especially in the broking market.

Meanwhile brokers with over 15 years’ experience in the D&O market are said to commonly expect a salary “with a two at the front”, whilst competition is incredibly tight for staff with three to five years’ experience.

Pay growth for junior staff has also been boosted, with graduates offered more attractive packages than in previous years, although sources stressed that this followed a number of years of stagnation, and that insurance pay was still well below that of finance professions like banking and the law, in part reflecting the lesser workload.

The bigger picture

The insurance sector is not unique in its experience of surging staff costs, with macroeconomic trends and the pandemic having driven up wages globally, including in financial services.

In the UK, wage levels as of October 2021 were 107.8% of those seen at the beginning of 2020, with the financial services sector outpacing average earnings growth, with wages 113% of the January 2020 figure.

The pandemic has pulled forward retirement dates for a significant proportion of employees, creating a demographic challenge, whilst economies rebounding from the hits taken during the pandemic have led to a tight labour market.

Other mainstays of the City such as banking and law have also seen staff offered better pay deals, with competition for staff corresponding with a boom period for M&A activity, huge investment bank profits and record partner payouts at law firms.

Lloyd’s CEO John Neal has said he expects to sign off on business plans allowing the market to grow by between 12% and 13% in 2021 and write up to $15bn of new business.

The CEO was speaking as part of Aon’s fireside chat series of interviews with top (re)insurance executives.

Neal also said he was confident the market would perform within expectations in 2021, and there was scope for growing both exposure and pricing.

The overall growth forecast is an upwards revision of a recent prediction Neal made of high-single-digit growth next year, though the new business forecast is at the low end of a £12bn-£13bn ($15.5bn-$16.8bn) range he previously cited. The comments come as the business planning process continues between Lloyd’s and syndicates.

Lloyd’s gross written premium in 2019 was £35.9bn.

Neal added that the Covid-19 pandemic had enhanced the importance of Lloyd’s physical presence.

“I think the physical location has perversely become more important, not because we can’t trade without it, but because that ability to connect in certain circumstances and certain instances is critical,” he explained

“And as real estate footprints reduce in the major cities, I think having a legitimate location where people can meet for the purposes of doing insurance has just gone up actually.”

The Lloyd’s leader noted that the insurance industry had got off to a “slow start” at the beginning of the pandemic and found itself on the back foot in the media.

“We found ourselves in a similar position I think the banks did in the financial crisis, people feeling disappointed or frustrated that either there wasn’t cover in force or that they thought there might have been cover but the cover wasn’t there,” he said.

He commented that the pandemic experience had proved a “wake up call” for insurers to consider protecting intangible assets on companies’ balance sheets.

Quizzed on broker consolidation, Neal said he thought Aon and Willis Towers Watson would flourish following their merger and improve the broking market.

“I think it will lift the standards and that must be net net good,” Neal said.

Around a third of 2021 business plans being submitted to Lloyd’s at this stage in the planning season are unrealistic in terms of growth or profitability expectations, CEO John Neal has said.

Speaking at a press conference after Lloyd’s H1 results today, the executive said no business plans had yet been approved at this point in the year, with the first of four “waves” of plans now being assessed.

An early assessment shows there is still a misalignment of expectations between Lloyd’s and some syndicates.

There is a percentage of plans Lloyd’s feels comfortable with, and a further proportion where “we feel we will get to where we want to be in terms of premium expectation or performance”, Neal said.

These two cohorts and the light-touch syndicates – which get automatic plan approval – account for around two-thirds of the market, the CEO continued.

“About a third of the market we would say we don’t see a clear path yet to plans which are logical, realistic and achievable,” Neal said.

“I am not discouraged by that, it’s where we would hope to be, but there’s lots of conversations to be had.”

The CEO said Lloyd’s would grow in the “high single digits” for next year, with around £12bn-£13bn ($15.6bn-$16.7bn) of new business set to be approved and new syndicates set to join the platform.

“Two years ago we were talking about £7bn of new business,” Neal added.

“I think we are getting the balance right for giving the flexibility for business growth… I think that is pretty significant growth for 2021.”

The CEO’s comments came after a set of Lloyd’s H1 results which were battered by £2.4bn of Covid-19 claims but showed significant improvement in the underlying underwriting performance of the market, with the attritional loss ratio declining 7.1 percentage points year on year to 52.6%.

That improvement was mainly driven by the past three years of remediation efforts, Neal said, without giving further detail. Improving rates gave a further tailwind, while Lloyd’s also booked a small amount of benefit from reduced loss frequency from certain lines as a result of Covid-19.

The CEO added: “We are near to where we would hope to be on an underlying basis. We expect to see further improvement through 2021 as the market works on delivering plans which are logical, realistic and achievable.”

Lloyd’s has announced a target of 35% female representation in leadership positions as it seeks to fulfil its commitment to driving long-term culture change in the market.

The 35% target applies to the Lloyd’s market, and within that to company boards, executive committees and direct reports to the executive committee. It is expected to be achieved by 31 December 2023.  

In addition, boards and executive committees combined will be expected to achieve at least 20% female representation by the end of 2023. All new market entrants will be expected to meet these targets on arrival. 

Lloyd’s said it would also set a target for market ethnicity in Q2 2021, following extensive collection of ethnicity data in the market to determine a starting point.  

Lloyd’s today additionally published its culture dashboard, which provides a snapshot of the demographic make-up of the market, informed by the Lloyd’s culture survey last year as well as market participant data across key demographic characteristics.

The dashboard was one of five action points Lloyd’s announced in March last year following a Bloomberg article that reported instances of sexual harassment in the Lloyd’s market, citing anonymous female sources.

The dashboard shows that women currently hold 29% of leadership roles as defined above.  

However, there are still 12 firms with all-male boards and 12 with all-male executive committees.  

Out of this group, seven firms have all-male board and executive committee teams combined. One firm has all-male direct reports of the executive committee. 

Within the Lloyd’s Corporation, women fill 47% of leadership roles.

“The market [female representation] target will drive an improvement in the gender balance in leadership roles across the market in the short-term, with Lloyd’s committing to a medium-term ambition for parity over the next decade,” Lloyd’s said.

Other findings from the culture dashboard include that 88% of the market identifies as heterosexual, with 2% as lesbian or gay and 1% as bisexual. Around 8% preferred not to say.

Meanwhile, just 4% of the market have a disability, while 91% are able-bodied and 5% preferred not to say.

Lloyd’s CEO John Neal said: “Last year, we committed to building a much more inclusive market – one that we are all deeply proud to be part of, and one that welcomes and represents the diversity of our customers globally. In the Corporation, we have achieved parity in less than two years and we are all the better for it.

“While we have put in place a series of actions to accelerate change, it is abundantly clear that we have much work to do and we must be impatient in our resolve to get there. The Corporation will continue to do more in leading the market on all aspects of inclusion.”

Lloyd’s CEO John Neal has said repricing “has to happen” following the substantial industry losses from Covid-19, and pledged flexibility in permitting additional growth to the market as rates rise. 

This morning, Lloyd’s released an industry underwriting loss estimate of $107bn for Covid-19. When including the expected hit to investments, this total industry impact rises to $203bn, Lloyd’s said.

The Lloyd’s market is expected to take $3bn-$4.3bn of the Covid-19 underwriting losses.

Speaking to Insurance Insider, Neal said: “You can’t put a potential $200bn loss into the non-life insurance industry and not expect the market to reprice.”

He added: “I hope we will learn from experiences of the past, whether that was 9/11 or another event, and realise that this has to be a significant pricing event.”

The Lloyd’s CEO said the Corporation would be as accommodating as it reasonably can be in permitting syndicates to grow in a hardening market.

Lloyd’s performance management directorate has been tough on growth in the past two years as it has sought to rectify market performance, a process which is still ongoing. The market has previously complained that Lloyd’s would not allow it to grow ahead of risk-adjusted rate.

“If there is growth that’s price-driven we will be very quick to support that,” Neal told this publication.

He said that Lloyd’s would do as much as it could to approve business plans quickly and simply, and “there would be forgiveness if the right opportunities are there within your plan to grow”.

The light-touch cohort of outperformers will gain automatic plan approval and therefore freedom to grow.

Neal said those which are not light touch, Lloyd’s had revamped the standard approach to business planning around some KPIs. Provided the plans are credible, and there is clear demonstration of how managing agents got to their forecasted loss picks, “we can fast track those approvals”, Neal said.

“I think the vast majority of syndicates will fall into those two buckets. If plans are sensibly constructed they will be approved,” Neal said. “But there is a third bucket, the high-touch syndicates, and if they have been a problem it will be a difficult set of discussions.”

The high-touch cohort is made up of both underperforming syndicates and those which are deemed material to the market – either due to their size or cat exposure. Lloyd’s 2020 planning documentation shows the high-touch cohort has around 20 syndicates and accounts for around 45 percent of market premium.

Lloyd’s will also be accommodating to new capital wishing to support Lloyd’s businesses as the market enters a period of opportunity, Neal said.

He pointed to the two new Lloyd’s entrants recently approved – Carbon and Ki – and said the syndicate in a box framework was generating steady levels of interest.

“Our ILS work continues, so there is no reason why that alternative capital shouldn’t come in,” he said. “There is still interest from those not yet participating in the market, who are thinking about when entry to Lloyds is the right time.

“As difficult as this pandemic is for our customers, and how devastating the broad impact has been, there is an opportunity for insurers.”

Lloyd’s is extremely well capitalised and will be able to shoulder the cost of Covid-19, Neal said, noting that the twice-yearly recapitalisation opportunities at Lloyd’s meant the market should also be able to bolster capital before the peak US wind season.

Neal also warned that the Covid-19 impact would drag out over a number of years, with the first year creating a catastrophe-type loss, then the effects of recession being felt on premium income in the following years.

“We have also got to keep a really strong eye on inflation probably for two years out,” Neal said. “I think our businesses at Lloyd’s have learned that we have got to adjust price to keep pace with the recessionary and inflationary impact that will echo through 2021 and 2022.”

Inquiry found rules to be “riddled with problems, unfairness and unintended consequences… the potential impact on the wider labour market has been overlooked by the government. A wholesale reform of IR35 is required.”

The report is critical of “numerous flaws” that “treats contractors as employees for tax purposes but do not qualify for employment rights, thus creating a class of zero-rights employees” and “places too great a burden on businesses”.

Summary of Lords Inquiry

It is right that everyone should pay their fair share of tax. But the evidence that we heard over the course of our inquiry suggests that the IR35 rules—the Government’s framework to tackle tax avoidance by those in ‘disguised employment’—have never worked satisfactorily, throughout the whole of their 20-year history. We therefore conclude that this framework is flawed.

Until the beginning of the COVID-19 pandemic, the Government had planned to extend off‑payroll working rules to the private sector in April 2020. The off‑payroll working rules build on IR35, and the new proposals were designed to mirror similar rules implemented in the public sector in 2017. Under the new rules IR35 itself will not change. Instead, large- and medium-sized businesses will be responsible for enforcing a regime which HMRC has struggled with.

The Government’s aim was to legislate for the new private sector rules in this year’s Finance Bill. But following the COVID-19 outbreak, and the Government’s assessment that introducing new rules was inappropriate at an extremely difficult time for the economy, the implementation of the rules will be deferred for a year.

We welcome this delay. It is right not to impose unnecessary burdens on business at such a difficult time. However, given the dysfunctionality of the existing system, we call on the Government to use the extra time to rethink fundamentally its approach to the legislation. We understand why, in order to improve compliance and protect the tax base, transferring responsibility for operating the rules to clients was deemed a remedy for the problems which have beset IR35. But the Government made this decision after considering the issue too narrowly, in terms of its tax take. It has severely underestimated the costs to business of implementing the changes. It did not take full account of concerns raised by stakeholders. And it did not analyse sufficiently the unintended behavioural consequences of the proposed reforms or their wider potential impact on the labour market, and on the gig economy in particular.

It is likely that the off‑payroll changes will cause widespread disruption. Many of our witnesses described how the proposals had already encouraged blanket status determinations and the early termination of contracts. We also heard that many contractors had been left in an undesirable ‘halfway house’: they do not enjoy the rights that come with employment, yet they are considered employees for tax purposes. In short, they are “zero-rights employees”. Separating employment status for tax purposes from employment status under employment law also fails to acknowledge that contractors bear all the risk for providing the workforce flexibility from which both parties benefit.

The Government should therefore take the opportunity afforded by the delay to analyse holistically the problems that we have uncovered. If the Government continues with its plan to introduce the off‑payroll reforms in April 2021, it should commission an independent review of the earlier introduction of the off‑payroll rules in the public sector to analyse how introducing off‑payroll rules to the private sector will affect the labour market. It should also, after two years of promising to do so, finally implement the recommendations of the Taylor Review of modern working practices: that the taxation of labour should be made more consistent across different forms of employment, while at the same time improving the rights and entitlements of self-employed people. We believe that the Taylor Review proposals offer the best long-term alternative solution to the off‑payroll rules, and provide an opportunity to consider tax, rights and risk together.

The UK economy is facing its most severe crisis since the Second World War. Even if the economy were to begin to recover in the next 12 months, the severity of the economic impact of COVID-19 is so great that it would be completely wrong for the Government to impose a new burden on business in the form of the existing off‑payroll proposals. However, business is likely to need considerably longer than a year to recover from the disruption caused by the COVID-19 pandemic. The Government should announce by October 2020 whether it will indeed implement the off‑payroll rules in April 2021, or whether any on-going impact to the economy resulting from the COVID-19 pandemic will require their implementation to be delayed further. In the longer term the Government should reassess the flawed IR35 framework, and give serious consideration to the fairer alternatives to the off‑payroll working rules which we lay out in this report.

The government has confirmed it will proceed with the planned extension of off-payroll rules into the private sector from April.

The confirmation came in a report from Treasury published this morning into the review of the implementation of the extension off-payroll working rules into the private sector.

However, having listened to stakeholders the government also revealed it is making a number of changes to address concerns, and support the smooth and successful implementation of the reform.

These include:

• Customers will not face penalties for errors relating to off-payroll in the first year – barring cases of deliberate non-compliance 
• HMRC has reaffirmed that information resulting from changes to the rules will not be used to open new investigations into Personal Service Companies (PSCs) for tax years before 6 April 2020, unless there is reason to suspect fraud or criminal behaviour
• The government reaffirms the rules will only apply to services carried out from 6 April 2020 onwards
• The government will legally require clients to respond to a request for information about their size from the agency or worker, and update the legislation to address concerns raised over the rules as they apply to off-shore companies.

While HMRC has already published detailed guidance on the reform and clarified the position on a range of concerns raised – for example, the client-led status disagreement process, including by making explicit the time limits within which a disagreement can be raised – the Employment Status Manual guidance has been further updated in line with other outcomes from the review. 

Although HMRC has already published a factsheet to support contractors prepare for the changes, and are continuing to step up their communications in the run-up to implementation, it will launch further products to support contractors in understanding the changes, including a self-help guide on how to spot tax avoidance schemes.

Government further committed to continue to listen to stakeholders, and monitor and evaluate the operation of the rules, while HMRC is to commission external research into the impacts of the reform six months after implementation, including on how status assessments are being made.

Commenting on today’s development, Samantha Hurley, director of operations at APSCo and co-chair of the government’s IR35 Forum, said the association’s members will welcome the extra time to adjust that the promised ‘soft landing’ offers.  

“When the review into implementation was launched last month, APSCo made it very clear that we were not seeking a complete delay to implementation, but a period of time within which recruitment businesses and end clients wouldn’t be penalised. This was communicated directly to HMRC and other stakeholders, and we are extremely pleased this recommendation has been listened to and taken on board by the government.

“HMRC has long maintained that it genuinely wants businesses to comply with the new rules and that there will be no witch hunt – and this latest move suggests this may truly be the case. The fact that it has also published additional guidance to educate the supply chain is welcomed by APSCo.

“In addition, policy changes announced today also offer much needed clarity for our members. The fact that all businesses now have a statutory obligation to confirm whether or not they are ‘small’ takes the onus off others in the supply chain, while confirmation on the timeline for disputes is also welcomed. Many of our members will be particularly relieved that the rules will no longer apply to clients based wholly overseas, with the obligation to determine tax status in these instances moving back to the contractor.

“While there is no escaping the fact that the extension of off-payroll rules is not ideal, overall, this is a significant win for the professional recruitment sector and I’d like to thank all of our members who got involved, shared their experiences and contributed to this outcome.”

Sophie Wingfield, director of policy at the Recruitment & Employment Confederation, said: “It’s a positive move that the Treasury is putting the obligation on small businesses to declare whether the IR35 rules apply to them. This is a direct response to what the REC has been calling for and should provide recruitment businesses with much needed clarity on their obligations.”

In relation to the decision by HMRC to take a ‘light touch’ approach to enforcement, Wingfield added: “Taking a ‘light touch’ approach to enforcement in the first year will create more problems than it solves. The consequences of not complying with tax law should be clear. Not doing so could create an unlevel playing field where compliant employers lose out to unethical ones. We need to see more details about how this approach will work in practice. What’s obvious from this is that the Treasury know IR35 is not quite right. Rather than tinkering around the edges of this complex legislation, we need the government to delay implementation until 2021 to make sure it’s done properly.”

While welcoming government’s promise of a soft landing in implementation of the rules, Julia Kermode, CEO of the Freelancer & Contractor Services Association (FCSA), added she is cautious that this may cause more confusion if clients and contractors are misled into thinking that the legislation has been delayed or will not be enforced.
 
“We have confirmed with HMRC that the soft landing is genuine and that penalties won’t ordinarily be applied for the first 12 months of implementing the reforms. This is good news because HMRC’s education programme was delayed due to the general election, so a number of businesses are only finding out about the reforms and their new liabilities now, just weeks before the legislation comes into effect. However, the soft landing does not mean that businesses and individuals can plan to ignore the changes because HMRC has also confirmed that penalties will be applied where there is deliberate non-compliance.

“FCSA also welcomes the clarity regarding overseas clients being out of scope, plus the amendment requiring clients to confirm whether or not they are small so that the supply chain can ascertain if the new off-payroll rules apply.
 
“It has been clear to me for some time that HMRC has been hell bent on planning to implement the off-payroll reforms this April come what may, and the publication of their review clearly shows that these reforms are coming whether we like it or not. I can’t see the budget on 11 March bringing about a U-turn, so it would seem that the House of Lords inquiry into the legislation is the last hope to affect any meaningful change.
 
“Having given evidence to the House of Lords this week, it was clear that they were listening to the various representations, and I did get the distinct impression that they were not supportive of the legislation. Time will tell as to whether or not they can make a difference but, in the meantime, I would strongly urge everyone to prepare for the reforms as penalties will still be issued for deliberate non-compliance.”

Make no mistake, the sudden news that performance management director Jon Hancock is leaving Lloyd’s will send ripples across the London market.

He’s the man who stopped the rot and set the wheels in motion for a more profitable Lloyd’s. At a time when the future for 1 Lime Street looked bleak, he demonstrated that a firm hand and a risk-based approach to regulation could start to rectify the mistakes of the past, albeit slowly.

Lloyd’s had suffered from a crisis of confidence – even John Neal acknowledged when he arrived as CEO that the marketplace had lost its mojo. Restoring positivity in the market has been a big win for the Corporation in recent times, and Hancock’s role across performance and transformation was an important driver of that renewed confidence.

It goes without saying that his exit is a major blow for Lloyd’s, at a time when momentum around performance and strategy was just starting to gain pace.

Lloyd’s is keen to publicly show that there are no hard feelings. The transition will be flexible to suit both parties, they have said. There will be no cliff edge.

Both Neal and Hancock have stressed that this separation is nothing to do with differences of professional opinion – nevertheless market tongues will still wag on whether this departure is really to do with the fact that Hancock’s more measured view of how to implement change was at odds with Neal’s ambition to spark a big bang moment for Lloyd’s.

Departing before he has done four years in the role – and in a critical year for the Lloyd’s transformation work – certainly suggests there is more behind the move than just itchy feet.

When we spoke to him, Hancock stressed a desire to return to the commercial side of insurance, to be challenged in a way that only P&L business accountability can do.

This only works to emphasise a wider challenge that Lloyd’s faces in retaining and keeping the best talent. The best staff are reluctant to work at regulators long term.

Talent retention and turnover of staff has historically been a big issue within the Corporation, even if recently improved sentiment around Lloyd’s puts it in a much better position to recruit a highly credible successor.

The next question for the Corporation is who wants to take on arguably one of the toughest jobs in the global (re)insurance market.

Few individuals impact the performance of such a wide swathe of the market. The performance management director has a remarkable level of influence on both market profitability and pricing dynamics.

For the Corporation, performance is a key pillar of the strategy and it cannot afford to falter now that gains are starting to be made – and particularly with another calendar-year underwriting loss most likely in the pipeline.

Neal has stressed that the tone of performance management will continue with the new recruit, and the standards that Hancock has set will “100 percent” continue.

For the good of the market, this statement must prove to be more than just lip service.

But at the same time, there will not be complete continuity between the new regime and the old. The new performance management director will surely want to make his or her own mark in the role and will not want to live in Hancock’s shadow.

It will be a fine line to tread, while carrying a huge weight of responsibility.

As we have said before, the talent element is crucial to Lloyd’s ability to carry out the transformational change it is targeting.

With much more still to be done, the next performance management director will be one of the most important hires, if not the most important, Lloyd’s has made in recent times.

Anticipation of a harder market and the creation of an unrestricted light-touch cohort of syndicates has resulted in an increase in the aggregate Lloyd’s market stamp capacity of 6.4 percent to £33bn ($43.6bn) for 2020.  

The Insurance Insider’s annual stamp capacity survey found that overall the market is permitted to write £2bn more business for 2020 than this year.

The increase also marks a reversal of the contraction in stamp seen for 2019, when the Lloyd’s performance management directorate’s clampdown had led to the exiting of a number of classes and a tough stance on growth. Stamp for 2020 is also higher than that recorded in the 2018 survey.

Stamp capacity is the amount of sterling business a syndicate is authorised to write in a year of account. For the purposes of this survey, stamp capacity is calculated as gross of reinsurance and net of brokerage.

The measure is not a perfect indicator of the amount of business that syndicates intend to write, with carriers choosing to maintain different amounts of headroom at different points in the cycle. However, it remains a useful proxy for the business the Lloyd’s market expects to write in a given year.

This publication previously reported that planned premium growth for the market in 2020 would be a few points higher than the expected risk-adjusted rate increase of 5 percent.

The top 10 syndicates by stamp capacity also collectively grew their stamp by 8.9 percent to £14.1bn.

The largest syndicate in the market is now Beazley’s flagship Syndicate 2623, which has grown its stamp by 19 percent year on year to £1.9bn for 2020.

Syndicate 2623 is understood to be a light-touch syndicate, one of a group of 15 which are permitted unrestricted growth due to a good track record.

As previously reported, the light-touch cohort of syndicates grew planned premium by 14 percent for 2020, compared to 3 percent for the rest of the market.

Syndicate 2623 has replaced MS Amlin’s Syndicate 2001 as the largest syndicate in the market. In 2019, Syndicate 2001 had a stamp capacity of £1.85bn, but has reduced this by £250mn for 2020 to become the third-largest syndicate with a stamp of £1.6bn.

The de-emption comes after news that MS Amlin would exit nine business lines as part of remediation efforts.