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Integrated underwriting and capital strategies growing at Lloyd’s: Aon

A photograph of the Lloyds Building in London from ground up

Lloyd’s managing agents are developing integrated underwriting and capital strategies to grow in a capital-efficient way, according to a report from Aon and the Lloyd’s Market Association (LMA).

The report said an integrated approach was “not yet evident across the board”, but for those that had developed it, business opportunities were being assessed in terms of their impact on capital.

“To grow in a capital-efficient way, many CFOs are striving for better integration between underwriting and capital strategies,” the report said.

The findings were published in a report produced by Aon and the LMA, with data gathered from 28 CFOs of Lloyd’s managing agents, representing 75% of the market’s capacity for 2021.

A total of 87% of the survey participants said they were looking to increase their Lloyd’s stamp, which the report noted was “unsurprising” given favourable market conditions.

For 92% of respondents, repairing balance sheets is not an issue, which the report said highlighted the resilience of the market in a post-Covid environment.

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Following restrictions introduced by the Corporation around the usage of letters of credit, Tier 2 capital is not being utilised by the market to its upper limit.

Average Tier 2 capital utilisation is now 28%, well below the upper limit of 50%.

A total of 20% of respondents held no Tier 2 capital at all.

Of the syndicates not utilising the full 50% allowance of Tier 2 capital, 62% said easy access to capital from their parent meant they did not need to.

The report noted that capital efficiency had “always been one of the standout reasons for businesses to operate in the Lloyd’s market”.

Eric Paire, head of the UK capital advisory team at Aon, said: “Following a couple of difficult underwriting years, the start of the Covid-19 pandemic and the tightening of rules on the use of Tier 2 capital, it appeared timely to look at how syndicates’ approach to capital management has evolved.

“In this regard, our report offers insight into the key considerations of Lloyd’s CFOs and highlights their evolving role, which includes setting strategy, facilitating growth, managing risk and optimising capital.”

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