Lloyd’s vows ‘increased scrutiny’ over syndicate response to inflation

Lloyd’s will dig deep in syndicate oversight on the questions of inflation countermeasures, attachment points and clarity of cover as the corporation leverages business plan reviews to ensure improvements on attritional losses hold their ground, a top Lloyd’s official has warned.

Lloyd’s will use upcoming business plan reviews to press “increased scrutiny in the classes where we believe the combination of rate, structure, growth and profitability to be unreasonable,” Lloyd’s chief of markets Patrick Tiernan said during this third quarter message to the market.

“It is critical that we maintain a sustainable attritional loss ratio and don't give up the hard-won gains of the remediation years,” Tiernan said. “To that end, our focus will be on inflation, attachment points and clarity of cover.”

Comments came directed at “a period of heightened uncertainty and volatility,” but don’t suggest Lloyd’s is ready to hide from growth.  “We do believe conditions support the measured growth of the market in areas where the capacity deployed is valued appropriately,” Tiernan said.

The cross of rate increases and structural changes in covers need to both handle the inflation outlook while still dealing with any lingering price adequacy shortfalls, Tiernan indicated.

Strategic shifts towards higher attachment points are understandable “in the current markets,” but need to be reflected in pricing and the lay of the loss picks.

“Syndicates need to ensure their pricing reflects any changes in their strategy to attach higher and that there is a shift in loss profiles and that this is articulated in the attritional large and cat loss ratios presented in plans.”

Lloyd’s has taken some confidence on risk-adjusted rate change assumptions as the consensus among syndicates on forward inflation has tightened for many classes versus a comparatively scattered outlook sported earlier in 2022, he added.

Tiernan expressed relief that the centre of gravity of H1 2022 nat cat events had fallen outside the focal points of Lloyd’s coverage, but warned against self-satisfaction. “There is no room for being complacent,” Tiernan said. “We need the market to be prudently positioned and well prepared for risks with the potential to manifest in major claims.”

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