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.

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.”