Spotlight on Lloyd's
Lloyd’s Backs Up Profitability Push With the Threat of Runoff

• November 2018
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When Lloyd's Finance Director John Parry delivered the market's results for the first half of this year, he issued a stark warning to syndicates that have produced consistent losses in recent years: Demonstrate how you will return to profit or face being put into runoff.

There are notable problems in marine, Parry recently told a press briefing at Lloyd's. Other affected lines, he said, are in such areas as international casualty, professional indemnity and energy. All told, he said, about 10% of Lloyd's 100 or so lines are not meeting the expectations of Lloyd's performance directorate.

“We are going to look at each case on its merits,” Parry said.

A syndicate that gets a tap on the shoulder will be expected to produce a credible plan to get back in profit within three years. “If we don't see a syndicate returning to a sustainable underwriting profit, we are minded to put them into runoff,” Parry said. Lloyd's has done something like this before, but never on this scale, Parry said. In the late 1990s, acting partly in its capacity as a regulator, he said, Lloyd's offered scrutiny of profitability on a syndicate-by-syndicate basis. “That was quite a blunt instrument thing,” Parry recalled. “This will be the toughest action yet.”

Citing its determination to write profitable business, CNA Hardy recently said it would stop writing property treaty, marine hull and some types of construction policies within Lloyd's. The lines being discontinued “have struggled to deliver consistent profitability even in light of improving market conditions,” CNA Hardy explained.

“Our goal as an organization is to generate profitable growth so that we can continue to deliver for our clients,” Dave Brosnan, chief executive officer of CNA Hardy, said in a statement. Parry said Lloyd's has not set a target in its push for profitability. Each case, he said, will be considered on its merits. “But if a syndicate isn't able to demonstrate a remediation plan, either by line of business or overall, then I'm afraid it will have to cease,” he said. Parry declined to estimate how much revenue might be at stake. But with so many classes involved, he said, “that's going to amount to a pretty decent chunk of premium.”