Our positive experience in recent years has made it possible to focus on experience versus exposure. With portions of the world economy on the rebound, market members will ignore increasing exposures at their peril. Market Oversight is one of the eight objectives of our Vision 2025 plan. It means acting with discipline as we pursue our performance management, risk management and capital setting activities; it means balancing realism with optimism.
Pressures mounted during 2014. An extraordinary amount of capital continued to flow into global markets and low investment rates persisted with virtually no investment income. We saw increasing concentration in our distribution channels and difficulties within broker business models that had a knock-on effect on the Corporation’s relationships. We are absolutely committed to working with brokers to identify better ways of helping them service their business without overburdening underwriters on cost.
We kept an eye on opportunities for thoughtful innovation and investigated opportunities in emerging risk as well as in emerging territories. An example of this has been the increasing involvement of Lloyd’s in cyber insurance. With all great opportunities come great threats. The importance of maintaining our understanding of aggregate exposures in this risk class cannot be overstated. As the world continues to shift and change we hope that by staying ahead of and involved in new risk categories Lloyd’s will retain its role as the market-leading solutions provider, as has been the case for so many hundreds of years.
One of the most courageous things we can do in this current macro environment is to find the freedom to say ‘no’ where appropriate. To examine a risk and turn it down in a competitive market takes some grit. In the final third of 2014 the difficulty of navigating a softening market increased with growing pressure on underwriters to pick their spots. This meant fully appreciating and understanding the concessions being given and having the guts to walk away if necessary. Many syndicates are doing this, but the market’s perseverance in sensibly addressing these pressures will be key to achieving a good result in 2015.
We will keep looking at ways to make the market more effective. During 2014 we stepped up our focus on wordings. The Lloyd’s market issues over 177,000 contracts a year. We need to be confident of the implications and meanings of the wordings used. Together with the Lloyd’s Market Association, the Corporation has begun to take a number of steps to improve the quality of wordings in the market. The market has weathered soft markets and difficult times before. The maintenance of a disciplined approach, making commercial concessions only where sensible, will separate the winners from the losers as we go forward.Close