The New Normal at Lloyd's?

March 30th, 2022

At the time of writing, we heard the unfortunate news that Lloyd's CEO, John Neal, has been seriously injured by a car while out cycling. John, we wish you the best for a swift recovery – at the very least, I hope this provides some interesting reading whilst you are stuck in bed resting!


Just 18 months ago, I wrote a piece calling for Lloyd's urgent need of a phoenix moment. Has it arrived, or should we avoid raising our glasses too soon?

We've seen a recent return to form in Lloyd's Annual Results for 2021; but whether this means the market is back on track, or back to square one, needs a bit more consideration.

Four key observations summarise my assessment of the Lloyd's market's direction and state of health, based on the data and narrative of the 2021 Annual Results:

  1. Underwriting results are the clear priority, and to its credit, Lloyd's is making money again despite large losses.
  2. Innovation goes back to basics, at the risk of achieving nothing at all.
  3. Lloyd's brand has resumed its mission of advancing and protecting all of humankind, through the new lens of sustainability.
  4. Syndicates have returned to work and are trying to stay out of trouble.

Quite deliberately, these observations mirror the “four key areas that will have a long-term impact on the Lloyd's market and drove [its] priorities in 2021”, set out in the Annual Results by the Lloyd's Council. These are: performance, digitalisation, purpose, and culture.

In a short section on each, we explore what the Council has asked of Lloyd's leadership, and challenge – for everyone's benefit – how successfully their targets have been achieved to date, and what we might expect next.


'Key area' number one for Lloyd's Council appears right on track for 2021:

Performance: Maintaining our focus on delivering sustainable profitable underwriting and improving efficiency in the way we deliver market oversight.

The market made an underwriting profit for the first time since 2016 – unsurprisingly, this isn't quite the framing of results that the report led with, but makes for important context – and, thanks to rate rises and reserve releases, the 93.5% combined ratio for 2021 was able to hearken back to the glory years of 2012-15, where combined ratios had averaged just 89.1% (unlike the years 2016-20, which averaged 105.8%).

Impressively, a year of relatively high ‘major losses' (almost £3bn) was comfortably absorbed: but this will need to be a part of Lloyd's ‘new normal' if recent major loss trends continue. In the last five years, annual major losses have averaged £3.7bn, a huge uptick from the average £1.3bn experienced in the five years prior, from 2012 to 2016. Thankfully, Lloyd's attritional loss ratio has steadily reduced in recent years, from 57.3% in 2019 to just 48.9% in 2021. But is this also driven by rate rises, gratefully received after a narrowly-dodged broker mega-merger?

Many of the key figures for 2021 have to be set in the context of an overall 10.9% average risk adjusted rate increase. That's big, and it somewhat takes the wind out of the sails of the celebrated 10.6% gross premium increase, from £35.5bn to £39.2bn – especially when net premium only grew by 3.0%, to £26.7bn.

In turn, loss ratios in a number of classes benefited substantially from reserve releases, which together with rate rises provided a whole new kind of R&R (well done if you spotted the quadruple entendre) for the Lloyd's Market. Property Reinsurance (102.8% to 98.9%), Property Insurance (104.7% to 94.8%), MAT (90.0% to 82.0%), Energy (98% to 91.5%) and Motor (101.0% to 93.8%) all saw substantially smoothed combined ratios compared to their accident year ratios, while Specialty remained flat, and Casualty Insurance and Reinsurance saw reserves suitably strengthened.

However they got there, these figures ensure that Lloyd's staff will receive their maximum market performance-related bonus for 2021. The Market Award – an incentive requiring both a combined ratio of below 94% and a profit of £2.5bn for its full 50% of salary payout – was seemingly achieved in full, thanks to a stellar set of syndicate results.


Meanwhile, it would seem that 'damage control' was necessitated for the second of the Council's key areas:

Digitalisation: Continuing to deliver our strategy to digitalise the Lloyd's market through the execution of our Future at Lloyd's transformation.

A priority for which by contrast, all target metrics were missed, despite a new array of incentives designed to focus specifically on Lloyd's digital transformation:

The Committee considered how the remuneration framework can motivate and retain key roles that are critical to the successful execution of the ambitious Blueprint Two programme and the sustainability of the Lloyd's platform for the future. Against this background, the Committee is introducing a new Transformation Incentive Plan.

It's worth noting that the plan can only be awarded if Lloyd's achieves a maximum 98.5% combined ratio. As a quick reality check: 2021 is the first year that the combined ratio has made it to below 102% since 2016, having averaged 107.7% between 2017-2020. Thus, if performance has to come first, for anyone to even have a chance of benefiting from achievement of the digital transformation objectives, it's almost necessary that these will remain a secondary concern.

The Transformation Incentive Plan for 2021 focused on the following three key lead indicators:

So how did it go? The Annual Results gave a stark summary of the Transformation Incentive Plan's success:

The 2021 awards have expired with no vesting.

Perhaps this is not especially surprising, given the highlights for the year under the Executive Team's ‘digitalisation' KPI were presented as:

Forgive my blunt reading of these 'achievements' below, but it points again to the challenges dealt with at length in my previous article on Lloyd's struggle to reinvent itself.

Yes, after more further additional extra consultation, there might be a new set of standards on the way, which reminds me of this meme (thanks Jezen).

Yes, a virtual room was launched as a pandemic sticking plaster, before being closed a little over a year later.

And yes, we also now have an interactive guide to Blueprint Two.

But perhaps it's not time to pop the champagne for digital just yet.

There is limited mention of the negatives, including the fiasco with vendor selection that ultimately led to a doubling down with the market's inseparable vendor DXC; the dismissal of the majority of the substantial Future at Lloyd's Team after their recruitment barely a year earlier; and the limited progress on most of the original aims of the various blueprints, despite substantial capital raises and market modernisation levies.

One wonders how the team feels about the lead indicators for the Transformation Incentive Plan of 2022:

Sounds like a lot to tackle? Concerned that it's entirely in the power of a legacy systems provider? Don't worry, a fashionable distraction (for businesses), also known as a crisis for humanity (for individuals), has recently become available.


Fortunately, Lloyd's has a new raison d'etre.

Purpose: Heightening our focus on sustainability, climate and inclusion.

Could the global ESG mission provide a new sense of purpose for a market that, just a few years ago, thought it would become a convenient online store for complex insurance? Meet the latest and greatest opportunity for self-actualisation and virtue-signalling in all industries, coming to an annual report near you.

For those not yet familiar, ESG is the new cool kid on the block, designed to tackle the environmental, governance and social responsibilities of corporations, all-in-one. Now, given that Lloyd's has long had an effective Corporate Social Responsibility team, various successful Diversity and Inclusion initiatives, and more Governance committees than most humans are capable of imagining, one would expect that Lloyd's renewed focus on this area must mean a drive towards sustainability and the E for environment in ESG.

Sustainability has been a thorn in Lloyd's side for some time. In April 2021, a pile of fake coal was dropped outside the building, blocking the entrance. In June, stink bombs were set off outside One Lime Street in protest against Lloyd's insurance of the West Cumbria coal mine. Then, in July, the building had green paint thrown on it, in complaint of a perceived ‘greenwashing' ft. Prince Charles, the heir apparent to the British throne. Finally, in October, 1,000 litres of fake oil was poured onto the street outside Lloyd's front door.

If the activists at Insurance Rebellion have done their maths correctly, the Lloyd's market insures “approximately 30% of global fossil fuel infrastructure”. So while Lloyd's may have launched Futureset – a new talking-about-it initiative focused on “the latest developments in systemic risk” – whether they will be willing to walk the walk of disposing of so much business remains to be seen.


And it's not just what goes on outside the building that could trouble the Lloyd's Council.

Culture: Progressing our cultural priorities for both the market and the Society.

After a rather embarrassing series of events at one syndicate came to light two weeks ago, the Council must be asking on one hand, whether the measures taken since 2019 were enough to truly change the market's culture, and on the other, whether there's much more they can do to support it.

The measures to date have been substantial: a dedicated culture microsite created, complete with toolkit, dashboard, KPIs and checklists; accountability at Board level added, including a new Non-Executive Director for Talent and Culture; and, minimum standards for culture published and enforced across the market through a 'speak up' campaign and active bystander training.

It's therefore noteworthy that so soon after the launch of the cultural advisory group in 2019, it is already being merged with the ESG group:

In November 2021, the Council approved the merger of the Culture Advisory Group (CAG) and the Environmental, Social & Governance Advisory Group to create the Environmental, Social & Governance Committee (ESG), to become a formal committee of the Council, with effect from 1 January 2022.

Does the merger of purpose and culture into an ‘other' bucket suggest a diminishing in priority for culture, or even the feeling of a job now done? Perhaps a more charitable interpretation is merited if we consider that an inappropriate situation was called out, and fines were issued to the syndicate in question, because (and not in spite of) the success of these culture initiatives. Indeed, from a closer read it would appear that, although the press were alerted only a couple of weeks ago, the events of concern took place mostly before the culture initiatives were launched.

Either way, one hopes that they will be enough: further analysis of executive compensation at Lloyd's suggests that culture is far from foremost amongst the Council's ‘key areas' of focus for the market.

Follow the Fortunes

In addition to the Market Award for underwriting performance, and the Transformation Incentive Plan for digitalisation, the Executive Directors (CEO, CFO/COO, Chief of Markets) usually receive an Individual Performance Award of up to 100% of salary. The individual KPIs are weighted 30% according to the individual's performance, with the remainder of the weightings spread unevenly across the four ‘key areas' outlined by the Council.

In 2021's Individual Performance Awards, culture got a not-at-all-whopping 14% weighting, whilst ESG was afforded a mere 7%, despite the recent excitement about sustainability. Considering the two will likely blend under the ESG Committee, one wonders whether their combined weighting will grow to 21%, or even disappear entirely under the 7% ESG umbrella. Either way, the number is unlikely to be convincing enough to become a focus for the Executive Directors at Lloyd's.

Meanwhile, the 24.5% weighting of digitalisation matches the 24.5% weighting of performance and risk management, suggesting equal priority at the beginning of the year. Presumably, it is the lack of progress in respect of the former which limited the CEO's individual award to 66% of salary this year, against a maximum of 100%, despite a results-only perception of a brilliant year for Lloyd's.

With a difficult set of digitalisation objectives, and the Transformation Incentive Plan only accessible with good market results – which themselves drive both the Market Award and the Individual Performance Award – it is hard to envisage a Lloyd's that isn't focused on the market's bottom line, at the cost of its digitalisation objectives. And I can't blame them for it. Unless and until digitalisation makes a true difference to market performance, Lloyd's interests remain vested in remaining a great big room with a bell in the middle of it.

Ultimately, we find that it is not so much that Lloyd's is infatuated with it's own charms, with some painting of Edward ‘Dorian Gray' Lloyd hanging in a secret room on Gallery 12, absorbing the pains of the legacy while brokers and underwriters live out their cherished old-school memories of Lloyd's. No, notwithstanding how accurately such a painting might portray the elderly state of our industry's processes, the real reason Lloyd's has been unable to change itself can be traced back to these leadership incentives: incentives so strongly pointed towards underwriting performance, that digitalisation has never really stood a chance.

The Narrative

Any analysis of Lloyd's Annual Results would be incomplete without some attention given to the story it tells. So, as is often the challenge of many underwriters, let us look and see whether the data matches the narrative.

Performance should still be at the front of the agenda based on our study, and it is, with the word ‘oversight' earning 60 mentions in the 180-page 2021 report, up from 44 in 2020 and 33 in 2019. True to form, underwriting ‘discipline' stayed steady at 8 mentions.

We also expected ‘digital(ise)(isation)' to feature strongly, though perhaps with some of the enthusiasm waning. It has fallen from 48 mentions in 2020 to 38 mentions in 2021. Perhaps more telling is the drop in mentions of ‘technology' (from 52 to 23), ‘blueprint' (from 40 to 19) and ‘innovation' (from 19 to 6) – the latter a supremely stark contrast from 2019, in which year's report ‘innovation' was mentioned 37 times.

Belting out the new party line, ESG has predictably rocketed up the menu, with 49 mentions up from 33 in 2020 and no mentions at all in 2019. Sustainab(le)(ility) in turn was the most popular word analysed this year, at 71 mentions, versus 45 in 2020 and 23 in 2019.

Meanwhile, ‘culture' appears to be leaving as quickly as it arrived, moving from 94 mentions in 2020 to only 60 in 2021. This will be interesting against increasing social interaction, as Covid mentions decrease from 117 to 44.

The Future at Lloyd's

Next year, what shall we expect? For our part here at Supercede, we'll be hoping that InsurTech gets more than the 0 mentions received this year, or perhaps even higher than the current all-time record of 2 mentions achieved in 2016 and 2020, respectively.

After all, it is the Lloyd's Lab – and its fabulous start-ups, ourselves just one reinsurance-focused member amongst them – that must carry the mantle of digital hope, for a market that has of late been necessarily preoccupied with pursuing its first underwriting profit in years.

With results back on form, lets hope we can look forward to a similar 2022, with the added sparkle of a little more innovation. We'll see you there!

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Jerad Leigh
Ben Rose
Jess McCausland
Tom Spier
Livvie Sandells