Exactly how well the market performed, however, is a more complicated question to answer.
Corporation management benchmarks its composite results against a number of other global (re)insurance businesses, and so will have a clear sense of how pleased it should be with last year’s performance in aggregate.
This peer group though is no longer shared publicly – leaving those of us on the outside without much of the context necessary for an informed evaluation.
At Insurance Insider, we have therefore devised our own Lloyd’s peer group in an attempt to further illuminate the market’s recent track record for our readers.
This is a complicated and subjective exercise, given that the Lloyd’s market is a unique beast in terms of its business mix.
Nevertheless, it is an exercise which we think is worthwhile to perform at a high level – provided we are transparent with our methodology.
Our peer group is focused on commercial specialty insurers and reinsurers, with results from only the most comparable divisions stripped out from the group financial statements of large corporates.
Broadly, the businesses included can be split into four groups: Bermudians, US excess and surplus lines insurers, global P&C reinsurers and the commercial specialty arms of a selection of large global carriers.
2021 results of a selection of commercial specialty (re)insurance businesses*
As the table above shows, taken together these businesses reported a weighted-average combined ratio of 96.4% in 2021 – approximately 3 percentage points worse than the Lloyd’s aggregate result of 93.5%.
But this is something of a crude comparison, as the weighting of the peer group’s aggregate premium across lines of business will be different to that of Lloyd’s. What’s more, it’s difficult to split Lloyd’s up in a way that allows for a neat comparison with these different groups of businesses.
However, what we can do is examine where Lloyd’s falls within the distribution of underwriting performances recorded by this peer group.
In any given year, this allows us to assess whether the aggregate result is roughly in line with the rest of the global market in which Lloyd’s operates – and, over time, whether major changes in its performance levels are more likely to be a result of fundamental improvements to its business operations or of broader fluctuations that management has less control over.
Looking at data for the last six years, we can see that between 2016 and 2020 Lloyd’s consistently underperformed the median business in our peer group by combined ratio.
In 2021, however, that shifted: Lloyd’s recorded a combined ratio which would have ranked it in the top half of the comparator group for the first time in the period analysed.
The median result in 2021 was Axis’ combined ratio of 97.5% across its insurance and reinsurance segments – 4 points higher than that of Lloyd’s.
The fact that the performance of Lloyd’s improved more significantly than other comparable businesses in the specialty (re)insurance universe suggests the market has a lot to be pleased with; years of hard remediation work appear to have paid off (although the rating environment would have given the market an extra tailwind).
It’s also worth bearing in mind that there are a range of syndicate-level underwriting performances hidden behind the composite numbers which Lloyd’s reports.
According to Lloyd’s, for instance, Quartile 1 – the market’s grouping of the best-performing syndicates – recorded an aggregate 2021 combined ratio of 82.1%, comfortably lower than the bottom end of the peer-group range.
We can also apply the same approach to the question of premium growth. There, however, the story is less flattering to Lloyd’s.
The chart above, which again plots Lloyd’s against the range and median of Insurance Insider’s peer group, shows the cumulative change in premiums written by those businesses over time.
In this case, Lloyd’s has clearly lagged the rest of its peers since 2019, reflecting the impact of management’s focus on cutting back unprofitable business in order to improve overall underwriting performance.
In aggregate, Lloyd’s wrote 1.3x more premium in 2021 than 2016, with only Swiss Re’s P&C Reinsurance segment growing less in proportionate terms among businesses in the peer group.
At the other end of the scale was RenaissanceRe, which increased the premiums written by its P&C and specialty segments by 3.3x – from $2.4bn to $7.8bn – over the same period. (The Bermuda-based company acquired Tokio Millennium Re from Tokio Marine Holdings for $1.5bn in 2018.)
Again, the unique nature of Lloyd’s will always make this sort of benchmarking difficult, and within the marketplace there will have been syndicates which will have been afforded much more room for growth. The Corporation has sought to reward the best performers in the market with permission to expand.
Nonetheless, there remains considerable value in attempting to ground the overall story of Lloyd’s in this additional context.
In 2021, this analysis has provided us with some concrete evidence for two commonly cited trends: the quality of underwriting at Lloyd’s has taken what appears to be a genuine step forward, and top-line growth has fallen behind peers over a number of years.
This year has already presented the specialty market with a fresh set of challenges, but this approach will equip us to better evaluate how Lloyd’s has dealt with them compared to the wider market – when next year’s results roll around again, and beyond.
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