Lloyd’s Reports Banner Year in 2023 but ‘Disciplined Underwriting’ Must Be Maintained

Lloyd’s strong 2023 results reaffirm the primacy of underwriting, “but it’s one year and therefore not a reason for complacency,” said Patrick Tiernan, chief of markets, in a market message to discuss preliminary results. Burkhard Keese, Lloyd’s chief financial officer, said the market “is now super strong” because of continued disciplined underwriting.

As a result, market expansion will be supported for the coming year for high-performing underwriters.

The market delivered a combined ratio of 84%, compared to 91.9% for full-year 2022, which Tiernan said is a global top quartile performance. Underwriting profit for FY 2023 increased nearly 127% to £5.9 billion (US$7.5 billion), compared with £2.6 billion (US$3.3 billion) for full-year 2022. (A combined ratio below 100 indicates an underwriting profit).

“In 2023, the shape and geographic composition of the Lloyd’s portfolio meant we were largely sheltered from some of the extreme regional nat cat activity…,” Tiernan said, noting that this performance was achieved despite the fact that global insured losses for natural catastrophes are expected to exceed $100 billion for the fourth year in a row.

“This was a highly successful journey for all of us, remarkable in uncertain times, which we certainly have. Resilience is key and Lloyd’s market is now super strong,” said Keese during the market briefing.

“We have followed our robust strategic framework and focused on performance and capital. Your discipline underwriting has pushed the market’s results into unchartered territory. We have created possibly our own tailwind, but be careful as creating headwind is far easier.”

Keese implored market practitioners to “stay disciplined, please,” while continuing to benefit from “outstanding” underwriting conditions.

Gross written premium increased by 11.6% to £52.1 billion ($66.3 billion) in 2023, compared with £46.7 billion ($59.4 billion) for full-year 2022, which reflects 4% organic growth and rate increase of just over 7%. (Actual 2023 FY results will be released on March 28).

“[O]verall pricing once again outperformed plan and outstripped loss cost trends. So 2023 represents a strong disciplined result that compares favorably against peers, but looking forward, it’s critical that we focus on underlying performance and be led by market fundamentals,” Tiernan emphasized.

Keese said the market handled the D&O and cyber challenges “exceptionally well” in 2023, “but the risk landscape remains ‘spicy.'” This was marked difference from the Lloyd’s Q3 market message in September when Tiernan described the approach being adopted by some elements of the market for D&O underwriting as “moronic,” indicating a lack of discipline in that sector. (Q3 Market Message – Lloyd’s (lloyds.com) at 4.49 minutes)

5 Phases for Success

Tiernan described Lloyd’s improved performance since 2017 as moving through five phases. First was the remediation phase, followed by necessary rating for sharply rising exposure values.

During the third phase, Tiernan said, the market grappled with rapidly rising inflation and interest rates, while the latest phase “brings underlying rate adequacy into sharper focus.”

“Finally and crucially, underwriting performance must now be sustained,” he continued. “Right now, I believe we are sitting somewhere between the last two phases. In the last couple of years, the top of the market has been called many times, but in my view, this is a false summit. Risk factors remain elevated across the portfolio and uncertainty has not been becalmed.”

The higher underwriting returns, which are expected from disciplined capital, reflect increased uncertainty, which Tiernan said, gives him confidence “that current pricing dynamics at a market level will not change materially in the near term.”

“As a result, we will continue to support market expansion, driven by existing high performers and underwriters with a track record of sustained underwriting profitability across all market conditions. If we look deeper into our own data, we know the best underwriters are capable of getting this right through the cycle.”

Tiernan noted that the outperforming cohort of syndicates has beaten the market by an average of 4% over the past eight years, and notably through the cycle they are able to return a net combined ratio in line Lloyd’s sub-95% threshold for a combined ratio that is deemed to provide sustainable profitability.

“Lloyd’s is uniquely placed to excel during periods of uncertainty and opportunity. It’s a great time to be a disciplined underwriter at Lloyd’s and discipline may well be the difference between sitting on the brink of sustainable growth versus the precipice of a fall,” Tiernan continued.