Lloyd’s performance director Jon Hancock has said it could be the time to shrink the size of the market amid a crackdown on underperforming syndicates.
However, the executive stressed that Lloyd’s was not setting targets for the size of the market, instead focusing on taking action to return the Corporation to profitability following a $2bn loss last year.
He said a necessary consequence of that could be that it is time for the market to shrink, although he noted that was not his ambition.
“It could be that you get a smaller more profitable lloyd’s for a while, it could be that you get a similar-sized more profitable lloyd’s for a while,” he explained.
“It depends on the opportunity and appetite for some of the underwriters to really go and make a difference,” he said, adding: “Whatever
size the market is as long as it’s in that sustainable profitable.”
His comments follow a crackdown on underperforming syndicates that has already seen Advent decide to go into run-off.
Asked whether there would be further closures, Hancock said: “It depends.”
“There is no target of closing syndicates,” Hancock explained. But, he said: “If a syndicate cannot produce a credible plan that convince themselves, their boards, their investors and Lloyd’s that they can return to a sustainable nearterm profit then it will close.”
He said the initial deadline for high-level plans was in July. More detailed plans have since been submitted and more are due next month.
“As you’d expect when you see 96 plans, one from each syndicate, there’s a whole range of good, bad and indifferent.”
In response to the first round of submissions, Hancock said Lloyd’s had gone back with “very specific” feedback including some to which Lloyd’s has responded with a “strong challenge”.
He said that the new get-tough approach in response to underperformance in the market marked a seachange in the way Lloyd’s manages the syndicates underwriting on Lime Street. “Has some of the tone changed from the top of lloyd’s, yes it has,”he said.
“Has some of the tone in terms of the underwriting performance become more directive and interventionist in some parts? Yes, it has right now. But that’s reflective of a market, which as a whole needs to improve its performance.
“Without doubt there has been a change.” He said his department was taking a “more hands on” approach in response to conditions in the market, arguing that taking action now would make sure Lloyd’s works in the future.
“We have certainly moved and we’ve done it knowingly but we’re doing it carefully and strongly,” he said
Hancock also hinted at a structural change in the market that could see Lloyd’s permit its syndicates to integrating ILS capacity into their underwriting.
He said the Corporation was “very open” to bringing alternative capacity into the market in a more meaningful way. He said Lloyd’s was in discussions over lots of potential structures that would allow syndicates to use ILS capital in their underwriting however he said no formal proposals had been submitted.
“Some of them are out there with some cat products,” he said, although the executive noted that were exploring structures for other types of capital that could be used to support their business.
Speaking about the appointment of John Neal as CEO to replace Inga Beale, Hancock said: “As with any new CEO going into any new role there’s always challenges, there’s always opportunities, there’s always things you’ll just carry on regardless and there’s things that you’ll do differently.”
“He’s steeped in Lloyd’s history,” he said.