Risk perception to drive doubling of insurance spend: Lloyd’s CEO Neal

In an interview with the Financial Times today, Lloyd’s of London CEO John Neal forecasts significant growth for the global insurance and reinsurance market, with the perception of risk set to drive a potential doubling in spend in a decade.

Lloyd’s, the specialist insurance and reinsurance marketplace, announced its 2022 full-year results this morning and in the wake of that CEO John Neal spoke with the FT and explained why he believes significant growth in insurance protection will be purchased over the coming years.

Neal said that a greater perception of risks such as banking failures and climate change are likely to drive much more risk transfer buying.

Financial risk, such as we see from the banking issues affecting markets today, as well as systemic risks such as climate change and pandemics are likely to drive demand for insurance capital much higher, it seems.

Neal told the FT, “The purchase and penetration of insurance is going up at a rate that is likely to see insurance purchases double in the next decade, life and non-life.”

He pointed to growth potential in the core US insurance market, as well as in faster growing market segments such as cyber risk and intellectual property.

The forecast suggests a growth curve and need for capacity that will be significant, which may also help in sustaining higher reinsurance rates and pricing.

With reinsurance and retrocession capacity already facing a shortfall in the last year, if insurance demand doubles in a decade it may be challenging for reinsurance capacity to keep up with that, limiting the chances of the market returning to a state of excess capital and softening.

Of course, Neal’s comments are also positive for insurance-linked securities (ILS), as markets such as catastrophe bonds will be able to grow and supply the necessary capacity to support global insurance premium growth.

Finally, it’s also of interest that Neal highlights that Lloyd’s wants to become more “investor friendly”, pointing to his forecast this morning in the Lloyd’s results announcement that the market’s premiums could reach $56 billion for 2023, up from 2022’s nearly $47 billion.

By giving greater visibility into Lloyd’s performance and also growth potential, Neal hopes to encourage more capital in to support the market.

Which bodes well for opportunities for third-party capital, ILS funds and institutional investors, that might appreciate the chance to access risk from Lloyd’s and support its growth over the next decade and beyond.