Lloyd’s is important. It is not a market you can ignore for very long. In the insurance and reinsurance universe, it is an above-average-sized planet with considerable gravitational pull.
The market will write more than $50bn in 2021 and, judging from the slew of capacity pre-emptions the London insurance trade press has been uncovering of late, substantially more in 2022.
And that gravitational pull really matters. This planet affects the height of the tides in far-off places.
Lloyd’s is a market but it has a common franchise and brand, a chain of security, an intricate network of global licences and crucially, a shared financial strength rating.
It needs to guard that franchise with its life.
Arguably, the person tasked with that job has had at least the second-most important executive role at the venerable marketplace and one of the most influential in global insurance.
The previous incumbent’s situation was unambiguous – Jon Hancock was brought in to turn performance around before the market’s reputation and ratings came under threat. A return to core profitability was priority number one, number two and number three.
It was tough and occasionally brutal work that caused casualties in the form of shuttered managing agents and syndicates, exited lines and severed relationships across the world.
Today, Patrick Tiernan has inherited the fruits of that considerable and painful labour.
Where Hancock had zero space to express himself, improved circumstances mean Tiernan has a much wider series of paths available to him.
Tiernan also has a wider remit. Hancock was performance management director while Tiernan’s job title is chief of markets, which adds development, distribution and the global network to the role.
All the more reason to get to know him.
Tiernan exudes Irish charm and has a self-deprecating sense of humour. We meet almost 100 days into his tenure and, when asked about his top priorities, his first quip is that his immediate goal has been to avoid “being chased out of the market by an angry mob”.
Of course, there is no mob to be seen, in fact so far just a line of admirers prepared to give this fresh-faced rising star a fair crack of the whip.
With Tiernan, the surface may be polished but always visible underneath are the intellect and steely focus on the core numbers of a trained accountant, experienced auditor and CFO.
For instance, after almost four years of continuous remediation and rising rates, Tiernan is dismissive of players who haven’t yet reconstructed their portfolios in such a way that underwriting profitability is sustainable across the cycle: “There is a point with certain players where if they can’t radically change their business model, they are just not sustainable. It’s not that we are being tougher, it just doesn’t make any sense going forward.”
But that doesn’t mean he expects all the Lloyd’s businesses you may be buying from to always be making a profit, particularly if they are doing something innovative and untested: “We don’t expect every part of every line to be super-profitable just because it’s 2021 and we’ve had 15 consecutive quarters of rate improvement. We’re not going to be overly dogmatic but at the same time, if you’ve got a mature business and you’re writing a mature line, what’s the excuse?”
Tiernan readily describes himself not as a visionary or a creative, but rather someone who is “trapped in logical thought”.
And that logic is ruthless. His pitch to you the risk manager is that while no insurance buyer likes premium hikes, the only thing you will like less is an insurance partner whose long-term credibility as a counterparty is being called into question: “The base building block is sustainability. If you continue to be sustainable and to deliver, you earn relevance. We deeply believe that to have the customers’, brokers’, ratings agencies’ and regulators’ trust, we must perform – and perform to an acceptable standard.”
Happily, the core performance has returned. Lloyd’s CEO John Neal said recently that despite another heavy catastrophe year that has contained the $30bn-plus Hurricane Ida, he still expected the market to post a sub-95% combined ratio in 2021.
Change of focus
So, what does this mean for hard-pressed customers?
There is a subtle change of focus towards positive enablement of innovation for progressive and consistently strong performers.
In Lloyd’s’ remediation phase, Tiernan surmises that an “inordinate amount of time” was spent on underperformers, whereas all the top syndicates could hope for was to be left alone.
Now the worst laggards have been dealt with, he hopes to be able to be more engaged with winners and actively trying to remove the barriers they have to doing business (and hopefully to solving your most pressing insurance problems).
Don’t be surprised therefore to find Lloyd’s carriers freed up to be more on the front foot on innovation in 2022 and beyond.
While an obsessive observer of the bottom line, Tiernan also has an instinctive understanding that it is the ability to take on new types of risk and solve client problems that keeps a business relevant and sustainable over the long term.
One such innovative thought going on presently is the possibility of Lloyd’s allowing captives into the market. It’s not a new idea, with the preparatory work and enabling rulemaking passed two decades ago, but perhaps it is an idea whose time has come?
Who wouldn’t want an A-rating and the global licences? The capital advantages are also considerable, as is the benefit of being embedded in a marketplace full of potential co-insurers and reinsurers with whom to trade and lay off surplus risk.
The only drawback is, as Tiernan points out, if you want to be in the club and to access all its benefits, your business plan will be scrutinised in a way you would be unlikely to experience in any of the popular offshore captive domiciles.
“There’s no bonfire of underwriting standards coming anywhere – that’s not on the cards,” the executive asserts.
Now, having Lloyd’s licences may save on the fronting bills, but its other base costs are likely to be relatively high and these are likely to be a factor, along with speed to market.
But Tiernan is clearly up for a challenge and would see the new business as accretive to the market as a whole: “We would certainly see this a win-win. We’re not trying to cannibalise business that is already in the market, it’s to bring new key partners into our sphere.”
Perhaps it’s time to have an exploratory word with your broker or captive manager?
Cyber and ESG
While you’re on the line, it’s highly probable you’ll be having a chat about what to do with your cyber insurance cover.
Unless you have been extraordinarily lucky, this will have been giving you some headaches since the last renewal, as a heavily increased frequency and severity of ransomware attacks has made its presence felt on pricing and capacity.
Lloyd’s has a 20% global market share in this line, so what Tiernan has to say here is bound to be relevant to you.
He outlines new disaster planning scenarios and a thematic review of the class. He clearly doesn’t want amateur dabblers but unlike many rivals, he doesn’t appear to have lost his core appetite for the risk itself: “In my view, our role is to ensure that we support the development of the market going forward, not to run in the face of changing risk dynamics.”
That sounds a little more like the fearless Lloyd’s of old.
Other matters doubtless occupying more of your time these days will be those of an environmental social and governance (ESG) nature. Indeed, ESG has become the business abbreviation of the year.
Once again, measured pragmatism is the order of the day. Tiernan recognises that it is not for Lloyd’s to set or reset public policy, and that enabling the transition and keeping the power on is a core priority.
He says he doesn’t want to be the market of last resort and would rather be on the front foot with new, green technologies that bring abundant new risks of their own.
Think hydrogen-pipeline explosion hazard and Tiernan will have been there way ahead of you.
In short, I have just met a technical, fun, smart, forward-looking and very savvy man whose first tendency is to study, understand and embrace risk rather than run away from it.
He will bring a rigour to the discourse that you might not have experienced in softer market times, but whether you agree or disagree, it should be a conversation that teaches you something – a free second opinion of the state of your risk that you should value.
Here is someone I feel you can do business with, and still enjoy it while you do.
Patrick Tiernan Résumé
- Lloyd’s: Chief of markets May 21 – present
- Aviva: MD UK commercial lines and global corporate and specialty Oct 19-May 21
- Aviva: MD global corporate and specialty Mar 2018-May 21
- Aviva: CFO Aviva Insurance Jan 17-May 21
- Starstone Group: COO Jan 14-Dec 16
- Zurich Insurance Group: CEO centrally managed business Dec-03-Sep13
- HIH Ltd: Head of special projects Nov 01-Sep 03
- E&Y: Audit Dec 97 – Apr 01