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Insurer in Full: Early targeted stamp increases point to largest Lloyd’s capacity on record in 2023

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Topics: Strategy

Expectations for the “best underwriting environment at Lloyd’s for at least a decade” are a key factor driving a swathe of large revenue increases in syndicates’ early 2023 business plan forecasts...

This publication has now tracked at least 11 syndicates requesting double-digit pre-emptions next year with an average increase of 24 percent on their current aggregate £3.8bn capacity (taking their combined 2023 stamp to £4.7bn).

Stamp capacity is a metric unique to Lloyd’s that measures the maximum amount of premium income, net of acquisition costs, a syndicate can write in an underwriting year.

Members’ agents – which advise individual and institutional Lloyd’s investors – say expectations of a continued hardening of rates in many specialty and reinsurance classes is a factor, together with weak sterling and high inflation.

Best underwriting environment “for at least a decade”

In a commentary last week, Hampden Private Capital described the current Lime Street underwriting environment as the “best for at least a decade”.

“We are now in an excellent position to capitalise on hard market conditions in most of the insurance classes as well as taking advantage of the long-overdue recovery in reinsurance rates,” the members’ agent explained.

“We at Hampden believe we are in the best underwriting environment for at least a decade”

While fellow members’ agent Argenta Private Capital said the size of the early increases gives syndicates with third-party capital wriggle room.

“Most syndicates maintain a good degree of headroom of capacity over plan, but for those syndicates with third-party capital, it is relatively easy to change plan but much harder to increase stamp capacity mid-year,” explained Andrew Colcomb, head of Argenta syndicate research.

“For that reason, we tend to encourage syndicates to make sure that they will not be constrained by capacity concerns in an improving market.”

Colcomb said he expected the average pre-emption among Argenta-backed syndicates to be in the mid-teens, but cautioned that full business plans won’t be available until early next month.

“We tend to encourage syndicates to make sure that they will not be constrained by capacity concerns in an improving market.”

Andrew Colcomb, head of syndicate research at Argenta Private Capital

However, the recent movements on Lime Street have been echoed by commentators on the reinsurance sector which – until recently at least – was seen as lagging the hardening market in specialty classes which began in 2018-19.

Swiss Re, for example, reported average P&C rate increases of 12 percent at the summer renewals.

While over the weekend the Financial Times reported there is a growing sentiment across the sector that reinsurance pricing increases are no longer lagging increases for primary covers. In many cases, they are now moving faster.

But in addition to the rating environment, a key factor underpinning the early Lloyd’s forecasts is a strong dollar. Almost 50 percent of Lloyd’s business emanates from North America and many international classes – including energy and aviation – also price in dollars.

Colcomb estimated the change in Lloyd’s business planning rate of exchange – from $1.38:£1 for 2022 to $1.21:£1 for 2023 – would by itself increase premium volumes by 10 percent for next year before accommodating for any rating impact.

The market is also having to factor in inflation on sums insured within its business planning, as well as a still-improving rate environment.

Atrium leads 2023 top-line hikes

As revealed by this publication last week, Atrium is seeking the largest pre-emption of those companies to have so far notified members’ agents of their planned increases. Syndicate 609 is looking to grow its stamp by 34 percent to £875mn next year.

We also revealed that Dale Underwriting Partners was seeking a pre-emption of 33.3 percent for its flagship Syndicate 1729, which would increase its stamp capacity to £280mn in 2023.

Syndicate proposals for 2023 pre-emption

Beazley is seeking a 22.8 percent increase in stamp capacity at Syndicate 623. If approved, Beazley’s pre-emption would take the syndicate’s stamp capacity to ~£722mn from the current £588mn. Syndicate 623 runs parallel to Beazley’s flagship Syndicate 2623, which grew its stamp capacity to more than £2.7bn this year. This move would cement Beazley’s position as Lloyd’s largest underwriter measured by gross written premium.

Argenta Syndicate 2121 is seeking a 21.2 percent pre-emption for 2023 which will take its stamp capacity to £800mn, while Cincinnati Global Syndicate 318 is seeking to grow 29.4 percent to £300mn.

SA Meacock Syndicate 727 is the additional syndicate seeking an increase in stamp capacity of more than 20 percent, with the syndicate looking to grow by 22 percent to £110.5mn for 2023.

 

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