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Survey Report

Portfolio management in the London market: What separates the best from the rest?

Incorporating the results of the 2019 Lloyd’s/Willis Towers Watson Portfolio Management survey

Insurance Consulting and Technology
Insurer Solutions

February 28, 2020

A report and survey exploring portfolio management practices, tools and expertise. The survey was conducted jointly by the Corporation of Lloyd’s and Willis Towers Watson, comprising 44 UK organisations inside and outside Lloyd’s, between them covering 75% of the gross written premium in the Lloyd’s market.

Although a common enough term around the London Market for many years, interpretations of the meaning of portfolio management vary. Ideas about how to approach it within individual organisations, or indeed in some cases whether to broach it at all, will depend on a range of circumstances such as the markets in which companies trade and the prevailing competitive pressures.

The long-term financial health of the market brought about by sustainable returns over time, achieved via careful portfolio management, will help insurers invest in and respond to the challenges of enterprise in today’s complex risk environment.”

Clyde Bernstein
Head of GB Broking

Portfolio management can, however, have a significant impact on business performance. To better understand this, the Corporation of Lloyd’s and Willis Towers Watson have conducted a benchmarking study comprising 44 UK organisations inside and outside Lloyd’s, which covers 75% of the gross written premium in the Lloyd’s market (excluding SPAs, SPSs, Life syndicates, RITC syndicates and Monoline syndicates.)

In this benchmarking study, 72 attributes of portfolio management were created, which were used to create an overall performance index. For Lloyd’s syndicates who participated in the survey, this performance was compared to their 2018 profitability (based on publicly available data).

Executive Summary

This report steps through three elements which help to bring some clarity to what portfolio management means in the London Market today.

This is particularly relevant for the underwriting function, where the roles are evolving to become more rounded, managing portfolios rather than being just single-class specialists. This report, the first in our portfolio management series, will show how upper quartile underwriters manage their portfolios by engaging in forward-looking cycle management with less churn in their portfolios, faster more agile reaction on rate and a smoother trend line on lapsed business.

1. Defining portfolio management

This type of activity may be described as ‘active portfolio management’, emphasising the need to look forward, not just back on past performance. It also alludes to the range of insurance company functions that need to be involved to harness the benefits of portfolio management, regardless of who has ultimate responsibility for its delivery.

The wider availability and awareness of data and analytics, an expanding suite of technology and tools to work with, and people and skills to execute are all important features of good portfolio management. This report finds these capabilities correlate to the ability to navigate markets and competitive pressures profitably.

2. Benchmarking across the London Market

The results of our survey of senior executives and underwriters in the London Market on portfolio management show:

  • Portfolio management has a material impact on profitability.
  • There is a wide range of capability across the market.
  • Most are taking steps to actively improve their portfolio management.
  • Having the right tools is only part of the story – how they are used makes a critical difference.
  • There are challenges in defining and monitoring portfolio mix, which are foundational competencies and appear to distinguish bottom quartile performance from the rest of the market.
  • Some of the factors that have the biggest impact are:
    • Portfolio management skills in senior people.
    • How a business comes together to make fast portfolio decisions.
    • How business plans are tested robustly.

3. Implementation considerations

This report summarises current approaches for developing portfolio management capabilities, including how a business plan is tested, how to use more advanced techniques (such as scenario modelling), and other indications of both good and poor practices.

Progress is being made amongst insurers who are investing in their portfolio management capabilities through data and technology solutions to deliver a more integrated approach to pricing, underwriting and business planning, which in turn will deliver more insight and control. There is clear expectation that this will deliver improved performance, which is reflected in results of the benchmarking survey.

Portfolio management supported by much more accurate data capture makes a huge difference to today’s market.”

James Kent
Global CEO, Willis Re

As companies continue to set new objectives for portfolio management, they will be forced to contemplate how underwriters interact with data and technology and the wider skills that will be needed to turn theory into practice.

Every organisation has a different starting point in their journey. This report will help to provide a reference point for an in-house review of capabilities, and to determine where to prioritise developments in the future.

In conclusion

As we have seen throughout this report there is a visible correlation between portfolio management and the profitability of the organisation, regardless of size.

Organisations are at different points in their relative maturity and the next steps will vary accordingly. However, regardless of your relative maturity, having the right skills in your business and the right quality of data are necessary underpins for active portfolio management.

Another consideration in planning for any improvement is the speed at which your organisation should move - which can range from steady building of capability over time to a high impact transformational change. Whatever is appropriate for a given organisation, the Future at Lloyd's represents a set of market changes that,if anything, could accelerate the speed at which improvements are deployed.

We will be exploring both of these themes in reports that will be co-published by Lloyd's and Willis Towers Watson over 2020, with the next report focusing in on data strategy, and the particular aspects that are relevant to portfolio management.

The full report is available to download from the link below.

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