Market discipline key as negative rates hit most classes: Lloyd’s CUO

Rachel Turk, Chief Underwriting Officer at Lloyd’s, has acknowledged that rates have softened more quickly than anticipated, but emphasised that favourable trading conditions and ongoing market discipline are expected to drive strong performance for 2025.

In the firm’s Q4 Market Message, the CUO highlighted pockets of concern, urging the market to be realistic about the challenges ahead in order to “try to manage the inevitable slide” toward the softest part of the cycle.

According to Turk, while there isn’t uniformity across classes, some themes are emerging, with all but the casualty classes now reportedly in negative rate territory.

“But I don’t view casualty risk-adjusted rate change of plus 1% to be anything worth shouting home about,” Turk said.

She added, “Social inflation remains a problem and I’m not convinced that this is adequately reflected. Granted, the reserve strengthening seen elsewhere isn’t as much of an issue for Lloyds as highlighted in our reserving review in 2024 and we have seen reduced limits and increase attachment points for the in-force portfolio.

“Tread with caution here. The tail on this class is long, and price adequacy is questionable. It feels like it is always playing catch-up.”

As for the rest of the classes that are firmly in negative rate change, Turk explained that there are some different dynamics at play.

The CUO continued, “Some classes, such as cyber continue to suffer from a supply and demand imbalance. The anticipated growth in new buyers for cyber just isn’t coming through. So, the market continues to chase the same pool.

“Cyber has a dynamic and evolving risk landscape and while we continue to update the models and scenarios, I fear that views on adequacy will always be optimistic and out of date.”

Turk added, “And then there are classes where it is the pace of the decrease rather than the quantum that is making me nervous. And first amongst these is property.

“Given market results in recent years and the relatively light North Atlantic hurricane season, rate pressures are likely to accelerate.

“Rate declines to levels that undo all margin will not go unchallenged. Nor will maintaining topline aspirations in the face of less than ideal market conditions.

“We will be scrutinizing actual versus expected trading conditions across all classes and speaking to those whose aspirations are out of line with reality.

“It’s a competitive market, and you have to be in it to win it. But don’t give away hard-earned margin in an inherently volatile marketplace.

“Have the courage of your own convictions and don’t follow the herd. This is the time where you can truly differentiate your performance.”

Turk concluded, “I do want to look back on 2025 and recognise that the market is in a good place. You are showing discipline and thus results for 2025 should be strong. The rating environment has softened quicker than anticipated, but we see you pick your way through this and focus on the bottom line.”