Jon Hancock, Director of Performance Management at Lloyd’s, met with Miller’s London team to talk through the outcomes of the Lloyd’s business planning process, which we share below.
"Jon, there has been a lot of discussion in the trade and financial press about the 2019 planning process that took place last year. What can you tell us about it?
The role of the Lloyd’s Performance Management team is to have oversight of the whole market, whilst ensuring that individual business plans are realistic and can deliver a sustainable performance once claims and operating costs are paid. As part of this, each year we work with every syndicate in the Lloyd’s market to review and approve their business plans.
Insurance is a challenging business at the moment, with an abundance of capital and fierce competition keeping prices low. In these conditions, some organisations have been tempted to continue reducing their prices to retain business or to underwrite risks they hope will be profitable, although sometimes experience tells them otherwise.
This isn’t sustainable in the long term and so, faced with falling profits at a market level, in 2018 we took a particularly robust approach to business planning. The process was always going to be tough, because we were correcting a number of years of under-performance in one cycle; not trying to do everything in one attempt, but certainly catching up.
What was different in 2018?
Last year, for the first time, we reviewed in detail the bottom performing 10% of each syndicate’s portfolio. This business – we called it ‘Decile 10’ – has had a disproportionate effect on the performance of the Lloyd’s market overall. Though Decile 10 attracted a lot of focus, it’s important to remember that there are plenty of syndicates and classes of business that are performing profitably year in, year out.
Whilst lots of the narrative has been on these poorer performing parts, at the other end of the spectrum, we have also worked closely with our syndicates who are looking to grow their portfolios through the new and innovative business for which Lloyd’s is well known. With this in mind, many syndicates have growth plans for 2019 across their whole syndicate, or certain classes of business: in fact, there are as many syndicates planning to grow as shrink this year.
Now the process is at an end, what is the outcome?
Challenging though the planning cycle was, it is important to understand that the outcome is ultimately a good one for all Lloyd’s stakeholders. We believe that a sustainable, profitable Lloyd’s market place is good for customers and good for the industry.
It is a plan where:
- Some syndicates are growing, some are shrinking
- All syndicates have strong performance plans
- No class of business has been closed across Lloyd’s – and there’s no reason why it should
- The market continues to offer coverage in every class of business that it did before
- There is still plenty of capacity at Lloyd’s, deployed with the best capability to deliver that sustainable and profitable performance
- It is a stronger plan because each syndicate is addressing its poorer performing classes – but also looking to maximise its best performing classes
- Whilst we wouldn’t expect to see growth at an overall market level this year, syndicates in the market are growing their best classes
- The plan is to write about £7.5bn of new and innovative business in 2019, to replace the naturally occurring lapses and grow those better areas
- The market will still be bigger than it was in 2016 and 2017
- It is a stronger plan as a result of the action everyone is taking
So, as you can see, we are taking steps to address under-performance where it exists, but our doors remain very much open for business.
What can the market expect this year?
2019 will be another competitive year and we will of course be working closely with syndicates as they continue with all of the good work they have done in their plans. Of course, the annual business planning will continue next year; but it should be less intense!
I’m confident that:
- The catch up of a few years activity in one cycle will not need repeating
- The ‘performance reviews’ which have been a part of the planning for the past few years will be discontinued
- We’ll continue to focus on segmentation through our decile approach, but it will be far more ‘business as usual’ throughout the year.
- We will continue to understand the Decile 10
- But we’re also taking a balanced approach, and will spend more time understanding each syndicate’s best business (Deciles 1 and 2), to encourage and approve more of that to be written
- We are also committed and ready to respond to any change in market conditions or opportunities, including supporting growth beyond plans if the opportunities arise.
Any final thoughts?
Lloyd’s is a wonderful and unique marketplace, but we are no different to any other organisation in our industry; all insurance entities must go through a business planning cycle, and many of them are going through an equally tough process. But, because we’re a high-profile brand and market, our approach to business planning was always going to be more public than most.
Over the past 330 years, Lloyd’s has demonstrated time and again its ability to adapt to change. As the new year gets under way, I feel really confident that the Lloyd’s market will continue to flourish and grow; providing its customers with the products and services they need in an ever-changing risk landscape".
About Jon Hancock
Jon Hancock joined Lloyd’s as Director of Performance Management in December 2016, where he has responsibility for performance management, capital setting and risk management across the Market. Having begun his career broking, Jon then moved to RSA, where he enjoyed a career of over 25 years with the insurance company, starting as a Marine underwriter in their Liverpool branch.
Working across UK Regions, the London market, as well as many years overseas, Jon has held a variety of Chief Underwriter and Risk roles in both developed and emerging markets, before becoming Chief Executive Officer for their Asia & Middle East businesses. His most recent role prior to Lloyd’s was Managing Director of RSA’s UK Commercial and European Specialty Lines businesses and Global Relationship Director for the wider RSA Group.