Lloyd's positive trajectory faces inflation challenge

Lloyd’s positive trajectory, after last year’s profit turnaround, faces challenges from the inflationary environment and uncertainties around natural catastrophe losses and Russia’s invasion of Ukraine, Gallagher Re says.

The reinsurance broker’s first annual Lloyd’s of London Market report finds actions to improve the sustainability and credibility of the market are gaining traction, as a focus continues on digitisation and modernisation reforms and environment social and governance (ESG) strategies.

Gallagher Re UK CEO Tom Wakefield says Lloyd’s made “great progress” last year, particularly given natural catastrophe levels, and a relentless effort to elevate syndicates’ performance has led to satisfactory results.

“Lloyd’s steadily decreasing attritional loss ratio points to the positive performance impact of portfolio remediation and rate increases,” he said. “Challenges remain, though. Maintaining or even stabilising the positive trajectory [this year] will be frustrated especially by intensifying inflationary pressures and their impacts.”

The Gallagher Re report tracks the capital and profitability of the Lloyd’s market, looking at published figures and trends. The market achieved a reduction in the combined ratio to 93.5% last year after “four challenging years” where the measure topped 100%.

Analysis of the distribution of individual syndicate underwriting performance found the majority achieved a sub-100% combined ratio last year, while the general performance spread across the market, viewed over a decade, has narrowed and shifted toward a profitable result versus previous years.

Inflation is a key issue looking ahead, and syndicates will need to ensure it is carefully considered and factored into planning activities, which will be monitored by Lloyd’s, the report says.

Pricing in property lines is expected to maintain an upward trajectory as insurers seek to manage increased reinsurance costs, inflationary pressure, and rate adequacy for natural perils losses.

In casualty, cyber claims will be a focus after increases, and given the long-term nature of casualty lines in general and the environment of social and economic inflation, a greater level of uncertainty is being factored into reserves.

Mr Wakefield says there’s momentum in the Lloyd’s underwriting performance and in market reform measures, which have taken a big step forward through an agreement this year of a data standard for electronic trading.

“Lloyd’s remains a market which we will promote to our clients as resilient, innovate and strong,” he said.