Lloyd's Q2 2024 market messages

Lloyds market message – May 2024

Patrick Tiernan, Lloyd’s chief of markets, Rachel Turk, Lloyds chief underwriting office and Mirjam Spies, interim chief actuary presented the latest Lloyds market message covering the second quarter of 2024.

Tiernan commented that the market is supported by favourable market conditions but that a complex risk environment still exists and so underwriting performance must be maintained. Better performing syndicates have continued to show restraint whilst the overall approach to syndicate performance is a maturing. Lloyds is comfortable with the current market fundamentals and sees no need to change the outlook for 2025 . Tiernan said growth was likely to slow due to reducing inflation and foreign exchange movement.

He noted that margins are reducing on US liability, and this will require more careful business planning.

The key points covered in the message are summarised below:

1. Risk-Adjusted Pricing Trends:
   • Risk-adjusted pricing at Lloyd’s increased by 2.2% in Q1, surpassing the 1.5% planned increase.
   • Property treaty rates rose by 6% and property direct and facultative (D&F) rates by 5%, both exceeding their respective plans of 3% and 4%.
2. US General Liability Concerns:
   • US general liability is a critical focus due to its potential volatility and narrow margins for error.
   • Current rate changes in this class are 1.4%, slightly above plan, but still require precise loss cost assumptions.
3. Performance Metrics:
   • Lloyd’s aims for a sub-95% combined ratio, noting that historically, it has exceeded large and catastrophe loss allowances by 5% annually over the past decade.
   • The market's combined ratio was 91.5% on a normalised basis (actual was 84.0% given lower than average catastrophe losses) in 2023, emphasizing the need for further improvements to manage future risks.

1. Key Challenges and Focus Areas:
   • Lloyd’s CUO Rachel Turk highlighted the importance of addressing loss cost inflation, climate risk, and geopolitical challenges in business planning.
   • Focus remains on US general liability, political violence, terrorism, strikes, riots, civil commotion, D&O, and cyber risks.
2. Innovation and Sustainability Initiatives:
   • The innovation ICX class capacity is expanded from 2% to 5% of syndicate GWP to encourage innovative insurance solutions.
   • A new TCX transition class will allow syndicates to deploy an additional 5% of GWP on sustainability-focused products, promoting Lloyd’s as a leader in sustainable insurance.
3. Market Outlook:
   • Lloyd’s expects the rate of growth to slow in 2025 due to less pronounced impacts from risk-adjusted rate changes, inflation, and FX.
   • The market remains vigilant about catastrophe costs, sustainable rate adequacy in casualty classes, and financial market stability amidst geopolitical uncertainties.

Tiernan and Turk underscored the need for robust underwriting, price adequacy, and strategic innovation to navigate the evolving risk landscape and maintain Lloyd’s leading market position.

The full Market message presentation can be found here Q2 Market Message - Lloyd's (lloyds.com)