Lloyd’s premium growth in 2020 will be heavily skewed towards better-performing syndicates as the Corporation seeks to incentivise the bottom quartile to improve performance and push the whole market towards more robust profitability.
The outcome of the 2020 planning process is the strongest signal yet that the reality is matching the rhetoric on differentiated regulation of managing agents.
As this publication reported last week, the performance management directorate (PMD) has permitted a measured level of exposure growth for the coming year in the aggregate, with planned premiums a few points higher than the current projected risk-adjusted rate rise of 5 percent.
However, the 15 outperformers in the light-touch cohort – which gain automatic plan approval – will grow significantly more than the rest of the market.
Slides used by the PMD in the presentation show that the light-touch cohort will book 14 percent growth in 2020 planned premium, compared to just 3 percent for the rest of the market.
More than three quarters of light-touch growth will also come from increased exposure, while the rest of the market will actually reduce their exposure by 26 percent and achieve their premium growth via rate increase.
The rest of the market includes the high-touch cohort, which holds around 20 syndicates and accounts for around 45 percent of market premium. It is made up of both underperforming syndicates and those which are deemed material to the market – either due to their size or cat exposure.
The planned premium projections allay fears PMD would prevent syndicates from capitalising on rate momentum after taking a hardline stance last year.
However, it’s clear that only those who tick all the boxes on underwriting and operational excellence, including success against long-term performance standards, can fully embrace the current growth opportunities.
The long-term success of differentiated oversight will depend on how the PMD decides to triage syndicates, and too crude a methodology could risk choking smaller syndicates of the growth they need to underwrite profitably, given the structural expense issues at Lloyd’s. It will also depend upon the light-touch syndicates retaining their discipline now that they are operating with reduced oversight.