Aon’s UK reinsurance head has praised the actions of Lloyd’s performance director Jon Hancock in tackling the markets poor performers as an “essential” first step to forcing down the Lloyd’s expense ratio “burden”.
Speaking at the annual industry Rendez-Vous in Monte Carlo, Nick Frankland, UK reinsurance CEO at Aon, said: “The work Jon Hancock’s department has been doing has generated a lot of noise. It hasn’t always been recognised but the work is essential.”
Re-Insurance revealed in June that Hancock was cracking down on under-performing syndicates, threatening them with closure if their results did not improve.
The performance director charged managing agents with reporting back plans on how they would improve their underwriting in a stark warning that Lloyd’s would be scrutinising all syndicates that have been unprofitable for the past three-years.
Frankland said: “Lloyd’s is the heartbeat of our industry, it’s the greatest talent pool in the market. But it has not been publishing very good financial results. In fact, they’ve been very poor results for a number of years now.”
“Quite rightly, Hancock’s department has been firstly focusing on profitability after which point Lloyd’s can look at new operating models and focus on addressing the Lloyd’s expense ratios, which we all know are something of a burden.”
The announcement to hone in on market underperformers came only months after Lloyd’s posted its worst results since 2001, with a £2bn loss for 2017 driven by a combined ratio of 114 percent.
The Aon executive praised the work of Hancock and his team for not simply closing down the underperforming syndicates, choosing instead to focus on returning them back to profitability.
“The most important thing is that Jon [Hancock] has no interest in closing down businesses or closing individual line of business down. He is focusing on profitability – so long as the business plans outline a direction of travel towards profitability over the next 12, 24, or even 36 months then he will consider it.”
Frankland said that it is too early to say what the absolute outcome of the work going into the Lloyd’s business planning process will be, as plans are being “worked on and revisited, either approved or sent back”.
The presence of a new CEO in the market will also prove a boon, Frankland said. As this publication exclusively revealed on 6 September, John Neal was selected CEO of Lloyd’s following a meeting of the Council of Lloyd’s where his appointment was approved unanimously.
“There has been a lot of noise surrounding Lloyd’s in recent months. It’s good to see some of that noise has been resolved following the appointment of John Neal,” Frankland said.
“We welcome his appointment and we see it as great news in the next stage of the Lloyd’s evolution.”
Neal, a 54-year-old Brit and former QBE CEO, will take up his position on 15 October 2018 replacing the current incumbent Inga Beale who led an admirable agenda of a more inclusive and diverse insurance market but who was also criticized for not recognisng the scale of reform that was required around costs, processes and underwriting standards.
“We’re highly supportive of everything that Lloyd’s is trying to do and believe the market is a longstanding part of our future,” added Frankland.
In June, Re-Insurance revealed that Lloyd’s had separately identified seven classes of business which are serially under-performing.
The seven classes – which are worth £6.4bn in annual GWP revenues to the market – are: marine hull; cargo; power; yacht; international professional indemnity; international D&F property; and overseas motor.
Commenting on the unprofitable lines, Frankland said: “We’ve seen a number of lines closed by a few syndicates and even bigger players like Hiscox pull out of lines because they weren’t making any money.”
“Every single major business line in Lloyd’s has not made money for over two, even three years. Clearly profitability is the key driver.”
Frankland warned that there is no silver bullet or quick fix to remedying the market challenges.
“The Planning process will take quite a while,” he said. “The difficulty will be to decide what capacity will be required to support the finally approved plans which may or may not be slightly reduced in terms of revenue line but may require more capital because the capital model is becoming more onerous.
“It will have an effect on certain marine lines, as we have already seen, and aviation capacity may be slightly smaller – whether that improves pricing in any way remains to be seen.”