The Lloyd’s market is on track to make money on underwriting for 2021 and 2022 following extensive remediation and rating uplift, assuming a more normalised level of cat and economic activity, CEO John Neal has said.
However, during a fireside chat for this publication’s virtual (Re)Connect event, the executive stressed that the market needed to continue with remediation work in order to gain long-term sustainable profit, capitalising on the improving rating environment.
“It is no good just thinking we can just make money for 2021 and 2022 – which we absolutely will assuming normal activities resume – but we have to be able to demonstrate it is sustainable throughout the next period when pricing is challenged,” he said.
Lloyd’s H1 results showed significant improvement in underlying profitability at Lloyd’s, with a 7.1-point improvement in attritional loss ratio to 52.6%.
“I thought 2020 was the year when we would bite and we are biting – you can really begin to see the hard work going in the last few years,” Neal said. “Those signals are really clear now.”
With the risk-free rate now close to just 40 basis points, (re)insurers at Lloyd’s are making almost zero money on investment return so they have to make money on underwriting, Neal added.
“We need to set the market up for long-term success and profitability,” the CEO said, adding that more poor business would be dropped for 2021.
“When you remediate it is like any change you make, you always have to cut a bit deeper than you think, perhaps twice as deeply.
“You can’t just hang on for price to bail you out. Bad business is bad business and shouldn’t be written.”
The Lloyd’s market will “definitively” grow for 2021 in the high single digits, the CEO said, “and within that there will be quite a lot of space for new business, as there must be 5%-10% of the existing book that needs to be worked through.”
To view this discussion and other (Re)Connect sessions on demand for free, click here.