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The shackles aren’t off for Lloyd’s syndicates in 2020

Lloyd’s 2020 business planning season has begun and already we seem to have an answer to one of the market’s key questions as it looks to the year ahead.

Growth will be permitted, but it will be measured.

As this publication reported this morning, early indications from the first few weeks of the planning season are that the remedial rigour seen at the end of last year has not lessened.

The decile work is still being done, and still we can expect the worst-performing business to be dropped.

With so much bad business already culled from the market, many believe that there won’t be as much blood on Lime Street during this year’s planning process as there was last year – but they are under no illusion that there will not be more pain to come.

The starting point on growth discussions is that it must be in line with risk-adjusted rate expansion, if it can be written profitably. There are always exceptions to the rule, but any growth of any magnitude must be justifiable.

Lloyd’s is still managing the market with a firm hand.

Syndicates are, of course, glad they can take some advantage of a better market environment. But many are concerned that the headroom they are permitted will not be enough. For them, growing in line with rate increase isn’t their idea of real cycle management.

Adding to this frustration is the fact that the light-touch syndicates – rewarded with autonomy for being consistent market outperformers - are said to be putting through double-digit percentage stamp pre-emptions.

Jon Hancock and his team have a fine line to tread between allowing syndicates to seize this opportunity and preventing a flood of capacity from re-entering the market, and a return to indiscipline.

It is crucial that the market does not fall into old habits at the first glimpse of pricing improvement.

After all, the wide-ranging and transformative strategy, aimed at carving out a new and exciting future for Lloyd’s and its stakeholders, means very little if market performance isn’t there to support it.

Furthermore, first-half market results showed there is still much more to be done. This was never going to be a one-year turnaround project and the market largely supports the principle that the work will take longer.

We’re unlikely to see a contraction in planned premium for 2020 as we did for 2019, but it is too early to predict what magnitude of growth the market will be permitted.

And if previous indications that syndicates will be differentiated by performance hold true, any growth will likely be weighted towards the top quartile of the market.

What is clear, though, is this is a new era in Lloyd’s performance management – a risk-based regime characterised by hand-holding, quarterly oversight and rewards for good behaviour.

As Blueprint One revealed, the Corporation has claimed a larger role for itself as the setter and enforcer of market standards. This applies to market performance as much as anything else.

Given how far it has to go in rectifying performance, the market will come to terms with the fact that the shackles won’t be off for 2020. But the question is, will they ever really be?

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