Rate adequacy paramount, Lloyd’s tells syndicates

Rate adequacy paramount, Lloyd’s tells syndicates

26 September 2022

Underwriters are continuing to operate in a challenging and difficult market and upward pressure on pricing is continuing, Lloyd’s Chief of Markets Patrick Tiernan says.

“The need for rate adequacy is paramount in periods of high uncertainty and volatility like this,” he said in a third quarter market message.

“Whilst we do see areas of the portfolio that are in retreat and other areas that are rating for inflation and not much more, we expect the upwards pressure on market pricing in aggregate to continue, driven by critical cat and stressed specialty classes.”

Mr Tiernan says it’s critical that Lloyd’s maintains a sustainable attritional loss ratio and that the market doesn’t give up hard won gains following remediation actions in recent years.

“To that end our focus will be on inflation, attachment points and clarity of cover,” he told syndicates.

“To maintain an acceptable loss ratio any rate increases or structural changes need to be ahead of the inflationary impacts and deal with pre-existing price adequacy shortfalls.”

Mr Tiernan highlighted a focus on reinsurance market conditions as syndicates develop underwriting plans.

Lloyd’s is also undertaking work, following impacts from the war in Ukraine, to evaluate the range of cross-class issues associated with rising geo-political tensions.

“We need to learn the lessons and be thoughtful of potential steps we can take to bolster the market’s preparedness for emerging risks,” Mr Tiernan said.

Lloyd’s, in conjunction with the London Markets Association is developing a set of realistic scenarios that would cover risks associated with the geopolitical tensions between China and Taiwan and the ensuing impact on US relations.

Data will be collected from the market and the expectation is that there will be three scenarios of escalating severities, Mr Tiernan said.