Lloyd’s poised to reach record size as syndicates eye double-digit growth in 2023
Lloyd’s is set for double-digit growth in 2023 amid expectations for the “best underwriting environment for at least a decade”, with early business plan forecasts showing a swathe of syndicates are seeking to grow revenue by 15 percent or more next year.
- Hampden Private Capital has described Lloyd’s underwriting environment as “best for at least a decade”
- Lloyd’s chairman Bruce Carnegie-Brown says market has earned the right to grow and was “match fit” to tackle emerging risks
- Lloyd’s top line grew 17.4% to £24bn during first half of 2022, with pricing contributing 7.7 percent
In a press briefing following last week’s H1 results announcement, Lloyd’s CEO John Neal revealed he was expecting both price increases and organic expansion to serve as growth drivers in 2023.
While the business planning process will continue through much of September, The Insurer last month revealed details of several private capital-backed syndicates that are looking to grow stamp capacity substantially in 2023.
Stamp capacity is a metric unique to Lloyd’s that measures the maximum amount of premium income, net of acquisition costs, a syndicate can write in an underwriting year.
Members’ agents – which advise individual and institutional Lloyd’s investors – say expectations of a continued hardening of rates in many specialty and reinsurance classes is a factor, together with weak sterling and high inflation.
In a recent commentary, Hampden Private Capital described the current Lime Street underwriting environment as the “best for at least a decade”.
“We are now in an excellent position to capitalise on hard market conditions in most of the insurance classes as well as taking advantage of the long-overdue recovery in reinsurance rates,” the members’ agent explained.
Managing agents to have notified members’ agents of planned increases include Beazley, which now plans to lift the stamp capacity of Syndicate 623 by 41.1 percent in 2023, having earlier indicated it was seeking a 22.8 percent increase.
Syndicate 623 runs parallel to Beazley’s flagship Syndicate 2623, which grew its stamp capacity to more than £2.7bn this year. This move would cement Beazley’s position as Lloyd’s largest underwriter measured by gross written premium.
Beazley’s Smart Tracker Syndicate 5623, which is set to transition from its current special purpose arrangement model into a full market-facing syndicate for 2023, is planning to increase its stamp capacity by 66 percent to ~£340mn for 2023, with members expected to be offered an increase in their capacity of between 35 percent and 40 percent.
Several other managing agents are also targeting substantial growth, with Atrium Syndicate 609 looking to grow its stamp by 34 percent to £875mn next year.
Dale Underwriting Partners is seeking a pre-emption of 33.3 percent for its flagship Syndicate 1729, which would increase its stamp capacity to £280mn in 2023.
Argenta Syndicate 2121 is seeking a 21.2 percent pre-emption for 2023 which will take its stamp capacity to £800mn, while Cincinnati Global Syndicate 318 is seeking to grow 29.4 percent to £300mn.
SA Meacock Syndicate 727 is also seeking an increase in stamp capacity of more than 20 percent, with the syndicate looking to grow by 22 percent to £110.5mn for 2023.
“Earned the right” to grow
The large pre-emptions highlight a strong appetite for growth on One Lime Street.
The Corporation has previously faced accusations that it has been “closed for business”, and criticised for holding back growth.
But chairman Bruce Carnegie-Brown gave a bullish outlook last week when he said the market had “earned the right” to grow and was now “match fit” to tackle emerging risks such as cyber.
“We’ve got ourselves to a place where for the majority of lines if business rates are adequate, indeed many would argue that underwriting conditions have not been better than they are today for over a generation,” he said.
In 2021 Lloyd’s delivered its first full-year profit since 2016, with the improved performance following a period or remediation of underperforming business lines instigated by former head of performance management Jon Hancock.
While investments posed headwinds during the first half of 2022 the market’s underwriting performance remained strong, with the aggregate combined ratio improving to 91.4 percent – its strongest underwriting result since 2015.
Underwriting profit increased from £960mn in H1 2021 to £1.2bn in the first six months of this year.
This was despite the market setting aside £1.1bn net of reinsurance for the Russia-Ukraine conflict during the first half.
Lloyd’s top line grew 17.4 percent to £24.0bn in H1. Pricing contributed 7.7 percent to this while volume growth from new business was 4.7 percent.
Casualty lines continued to see rates up over 10 percent in the first half of the year, while all other lines excluding motor and energy witnessed rate increases of 5-10 percent in H1.
Speaking to The Insurer, Lloyd’s CFO and COO Burkhard Keese said the focus continues on underperforming portfolios.
“We are still remediating poor business, not renewing it,” he said. “But we’re also adding more business, which we believe is profitable.”
Keese said that cyber was the class that continued to grow the most at Lloyd’s – both in terms of new business and pricing.
For nat cat business, Keese said discussions with syndicates had focused on the need for portfolios to be profitable over the long term, with an 80 percent likelihood. He said key to achieving this was diversification in portfolios across geographical regions outside of peak risk zones.
And he revealed that business plans for the year ahead pointed to an increase in the volume of nat cat business being written at Lloyd’s driven by rate increases in the class.