November 2019

Lloyd’s market planned premium growth for 2020 will be a few points higher than the market-average risk-adjusted rate increase of 5 percent, The Insurance Insider understands.  

Sources who attended a market presentation today led by Lloyd’s performance management director Jon Hancock and CFO Burkhard Keese told this publication that all classes of business, with the exception of accident and health and personal accident, are expected to have rate rises in 2020.

The market growth expectations come after a planning process which subjected syndicates to the same level of remedial rigour as last year, with Lloyd’s maintaining its “improve or remove” stance on planning. Many underwriters had been concerned that the Corporation’s firm stance on growth would prevent them from taking advantage of the improving rate environment in London.

It was suggested that the improvement in rate would also help drive a better market performance in 2020. The planned combined ratio in 2020 is said to be a few percentage points lower than the plan for 2019, driven predominantly by the loss ratio.

All syndicate business plans are now complete, with the official coming-into-line deadline on 3 December, and during the planning process Lloyd’s continued with its differentiated approach on oversight.

It is understood that the “light-touch” cohort of 15 syndicates – who are granted automatic business plan approval as a result of their good track record – will grow significantly more than the market average in 2020. This growth will predominately be through exposure growth in existing classes but some have chosen to enter new lines of business.

Conversely, the “high-touch” cohort of around 20 syndicates, which represent 45 percent of market premium, will grow less than risk-adjusted rate.

It is understood that a syndicate can also be designated high-touch because of its materiality to the market due to size or cat exposure – it is not necessarily an indication of poor performance.

There is also differentiation between the level of oversight within that high-touch cohort, but generally it requires more intervention and communication with the performance management directorate (PMD) on areas such as reserves and results.

The Decile 10 process continues and planned premium for the lowest-performing decile of business will reduce by a few hundred million pounds, sources said. The combined ratio for Decile 10 business will also improve by 3 points year on year.

Meanwhile, planned premium for deciles 1 and 2 will grow by several hundred million pounds. The middling deciles will grow in line with rate.

As previously reported, business plans could only gain approval with a reduction in expense ratio, and this publication understands the overall planned expense ratio for 2020 is 0.5 percentage points lower than that planned for 2019.

This is due to lower acquisition costs due to a changing business mix. The admin ratio is also improving but to a lesser extent than last year.

In terms of capital, the Lloyd’s market will hold more capital for 2020 plans than 2019, due to the additional premium which will come into the market. However, it is understood that as a proportion of premium, the amount of capital held is lower, due to a higher level of profit written into the plans.

It is also understood that there were fewer capital loadings this year than last.

Lloyd’s PMD had committed to an improved business-planning process this year, including a four-week turnaround for those plans on message. This planning season 75 percent of plans were put through within that timeframe.

The market also asked for more feedback in the process, and Lloyd’s provided it on 92 percent of plans within 10 working days. Lloyd’s also provided immediate feedback after the capital and planning group meeting, with 85 percent of plans responded to within 24 hours.

Sources said the PMD was pleased with this improved process compared to last year but still had more work to do on this front.


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