Best's Review


Transformation: Lloyd's
The Choppy Seas of Change

Lloyd’s sets sail on an ambitious journey of transformation, reform.
  • Terrence Dopp
  • March 2020
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Key Points

  • Issues: Venerable 334-year-old institution faces existential challenges amid financial, cultural difficulties.
  • Performance: While the market’s performance had shown weakness in recent years, it’s trajectory is climbing and long-term remains stable.
  • Looking Ahead: The Future at Lloyd’s initiative aims to expand technology, close syndicates and boost profitability.


Shuttered lines of business. Red ink. Throw in some controversy over daytime drinking and allegations of sexual harassment. Add them together, and it's a lot to overcome.

That's exactly what Lloyd's, the venerable 334-year-old institution that is the world's largest insurance and reinsurance market, is looking to do right now with a self-imposed transformation—dubbed the Future at Lloyd's initiative—that calls for more technology, closing unprofitable business lines and promoting diversity.

Change can be a tough order at any organization. Add a history as storied as that of Lloyd's—coupled with a recent history of profit-making—and it can be like trying to pull off a three-point turn behind the wheel of a semi-truck in a driveway. The best-case scenario: Expect a few divots.

“The Future at Lloyd's is a bold and ambitious strategy, which inevitably presents a challenge for the market but the opportunities are immense,” a Lloyd's spokesman said in an email. “Of course, we need the support of all market participants to make this a success and achieve our vision to build the most advanced insurance marketplace in the world.”

As part of this internal stock-taking, Chief Executive John Neal said in November Lloyd's needs to look closely at the quality, type and style of products and services offered. It also needs to tackle the cost of doing business there in order to reassure members, he said.

“The world around us is changing. The expectations of our own customers, the type and style of their business, the risks they present are very different to the risks that were presented even five and 10 years ago,'' Neal said at the AM Best Insurance Market Briefing-Europe in London.

London's got a reputation as an expensive place to do business.

Jessica Botelho-Young AM Best

Should Lloyd’s be unsuccessful in its modernization project and peers are able to widen the gap in both efficiency and the ease of doing business, it may struggle to remain competitive.

Jessica Botelho-Young
AM Best

Jessica Botelho-Young, a senior financial analyst at AM Best, said this well-documented issue, and the expense ratio of Lloyd's, over the past five years compares unfavorably to that of European, U.S., and Bermudian reinsurers.

“Inefficiencies associated with placing business, the length of the distribution chain and growing acquisition costs play a significant role in the disparity,” she said. “Should Lloyd's be unsuccessful in its modernization project and peers are able to widen the gap in both efficiency and the ease of doing business, it may struggle to remain competitive.”

The challenges have so far come on two main fronts. First, there were the operations matters: Natural disasters in 2017 proved harmful to the bottom line, and the company faced mounting pressure to modernize the way it transacts business. At the same time came the internal failings: Being outed as a bastion of a long-gone workplace that smacked of Mad Men's day-drinking harassers took a bite out of its social currency.

Financial institutions around the world and across sectors are confronting the need to bring their operations into the current age if they hope to prosper, said Robert Hartwig, director of the Center for Risk and Uncertainty Management at the University of South Carolina's Darla Moore School of Business.

While corrections to workplace culture can be undertaken immediately, it's on the business side that changes can take years to draft, implement and show results, he said.

“You can see that this is their absolute priority and they understand that, if Lloyd's is to make it to midcentury,” Hartwig said. “They're going to need to make these changes and make them in the next few years. So this is their existential challenge, and the existential challenge being faced by large institutions everywhere.”

The exchange was forced to turn a critical eye on itself after a March 2019 Bloomberg Businessweek article that detailed complaints of alcohol-fueled misbehavior and sexual harassment within Lloyd's.

This introspective streak prompted the largest-ever survey of the market's internal culture. A report issued in September found 8% of people there reported witnessing sexual harassment in the previous year. Less than half, 45% said they'd be confident in raising concerns about sexual harassment, and 22% who said they've seen people in their organization turn a blind eye.

U.K.'s Financial Conduct Authority on Jan. 6 prodded insurers to clean up bad behavior and boost diversity or risk consequences. Jonathan Davidson, the FCA's executive director of supervision, retail and authorizations, said how firms handle discrimination, harassment, victimization and bullying are indicators of internal culture.

John Neal Lloyd’s

The world around us is changing. The expectations of our own customers, the type and style of their business, the risks they present are very different to the risks that were presented even five and 10 years ago.

John Neal

But while issues of gender-based harassment and misbehavior took a toll from the perspective of headline risk, the numbers had their own tale to tell.

Lloyd's was in a strong position with a combined ratio that averaged 96.9 over the previous decade and a return on equity rate of 7.1%, according to BestLink. However, BestLink also cited the market's slow adoption of technology and warned of “high degree of execution risk” due to substantial investment and cultural change it entails.

Lloyd's pretax gain fell from £3.86 billion (US$5 billion) in 2009, to a £1 billion loss in 2018, according to more than a decade of results provided by Lloyd's. There is a silver lining to the numbers however: The £1 billion figure in 2018 was half of the loss in 2017, and it registered losses in only three of those 10 years. Also, the preliminary 2019 report shows a profit of £2.3 billion.

Easing both the cost and practice of doing business at Lloyd's has been a central focus of the Future program. The effort began in 2018 when Lloyd's ordered syndicates with three consecutive years of underwriting losses to craft a plan to stanch red ink.

And there seems to be some movement. There were 80 syndicates and 13 deal-specific special-purpose arrangements at the midpoint of 2019, according to data supplied by Lloyd's. This was down from 84 and 15, respectively, the previous year and marked a retreat to 2014 numbers.

Lloyd's said in January that it had selected marine hull and international casualty binders as the first two test classes in its modernized syndicates program, creating leader and followers standards to improve performance and eliminate duplication. The pilot program, which will be used to shape future standards across lines, is set to begin late in the first quarter or early in the second, the market said in announcing the plan.

Lloyd's announced in December it had secured a loan of £300 million to fund its Future at Lloyd's Blueprint One program, a plan to boost profitability and technology on an exchange known as a last redoubt of handshake business deals. That plan ranges from improving working practices and making the most of digital technology to encouraging more flexible use of capital.

It faced another major change in January when Jon Hancock, the performance management director who played a lead role in executing on the Blueprint One initiative, announced he'd be stepping down at some point in 2020. Neal deemed his sponsorship of the program “critical” to the future strategy for the exchange.

“So, while we continue to monitor the drivers of underperformance, we are also looking for syndicates to manage and develop their best performing classes. And we are empowering them to do this with a new light-touch oversight approach for selected high-performing syndicates,” the Lloyd's spokesman said. American Financial Group said Jan. 6 it plans to leave the Lloyd's insurance market in 2020 and has placed its Neon Underwriting Ltd. Subsidiary into run-off.




“We've got a vision that people have bought into. I'm quite relaxed we've got a plan we can execute. But I think it's the cultural change that the market's got to go through that's probably the hardest to achieve,” Neal said in November.

Hartwig said any doubt on the part of the broader insurance market would be felt in terms of shakiness or a fall-off in business.

“We don't see that. The markets are operating smoothly without disruptions,” he said, citing the inevitability of yearly fluctuations. “There seems to be no material concern in the marketplace that Lloyd's is going to be a diminished player anytime soon.” It is not the first time Lloyd's has weathered a crisis and responded with a strategy to right the ship.

The market was wracked by huge asbestos and pollution losses in the United States in the '90s, leading to litigation from individual members, or Names, who were once the backbone of the Lloyd's market. For their acceptance of unlimited liability, the Names stood to make large profits.

In 2002, Lloyd's underwent a radical overhaul to modernize the market and boost its performance. One provision favored corporate capital providers, which have since displaced the Names as the source of most of Lloyd's capacity. The market was reorganized under a single franchise board with broad powers to develop and enforce standards of performance and service by the managing agencies that operate Lloyd's underwriting syndicates. It also moved to annual accounting from a three-year system, and banned new Names joining the market on the traditional basis of unlimited liability.

Terrence Dopp is a senior associate editor. He can be reached at

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