Top performers reported that strong portfolio management led to a 5% uplift in their combined operating ratio, according to a Lloyd’s / Willis Towers Watson study
“Portfolio management is a critical capability that will become even more important as insurers move to adopt new business models as the market modernises.”
Richard Clarkson,
Head of London Market Consulting at Willis Towers Watson
LONDON, 4 June 2020 – Strong portfolio management is becoming an increasingly important tool in the London Market to deliver underwriting profit, according to a study published by Lloyd’s of London and Willis Towers Watson. The top quartile performers in the benchmarking study had on average a combined operating ratio (COR) of 98% compared to an average of 103% across all Lloyd’s participants1.
The two organisations conducted the study of senior executives and underwriters in the London Market to better understand the impact of portfolio management on business performance, which included Lloyd’s market organisations representing 75% of Lloyd’s gross written premium2.
In the study, 72 attributes of portfolio management were identified and used to create an overall performance index. For participating Lloyd’s syndicates, this performance was compared to their 2018 profitability (based on publicly available data), helping to establish a clear link between good portfolio management and the likelihood to deliver sustained underwriting profit.
Caroline Dunn, Head of Underwriting at Lloyd’s, said: “First-class underwriting performance is a critical foundation upon which Lloyd’s strategy to build the world’s most advanced insurance marketplace is based. The highest underwriting standards are essential to protect customers, the market’s reputation, the central fund and our credit rating, as well as ensuring the long-term sustainability of the Lloyd’s market.
“Despite this, relatively few companies have looked in depth at what constitutes best-in-class portfolio management and what advantages there are to adopting best practice. This is particularly relevant for underwriting, where the roles are evolving to become more rounded, managing portfolios rather than being just single-class specialists.”
Richard Clarkson, Head of London Market Consulting at Willis Towers Watson, said: “We identified three strategic drivers impacting the London Market today - performance remediation, market modernisation and culture, including skills needed in the future. Portfolio management is a critical capability that operates across all these drivers and will become even more important as insurers move to adopt new business models as the market modernises.
“The report findings should benefit Lloyd’s market participants by describing what constitutes a strong portfolio management capability, which may allow them to systematically fully understand and improve the performance and financial sustainability of the different parts of their business.”
The 72 attributes were then grouped into 12 categories, under three key dimensions: Granularity, Agility and Coherence. The study identified six of these categories as particularly significant for outperforming organisations that have successfully developed an effective portfolio management framework:
“Portfolio management supported by more accurate data makes a huge difference to today’s market. Until recently, this latest set of renewals would have seen blanket market pricing across various business lines versus what we have today, which is very specific pricing to each client depending on loss record, portfolio composition, strength of management team and broader corporate relationships,” said Clarkson.
The Corporation of Lloyd’s and Willis Towers Watson conducted a Portfolio Management benchmarking study at the end of 2019, comprising 44 UK organisations inside and outside Lloyd’s, covering 75% of the gross written premium in the Lloyd’s market (excluding SPAs, SPSs, Life syndicates, RITC syndicates and Monoline syndicates).
Lloyd’s is the world’s specialist insurance and reinsurance market. Under our globally trusted name, we act as the market’s custodian. Backed by diverse global capital and excellent financial ratings, Lloyd’s works with a global network to grow the insured world – building resilience of local communities and strengthening global economic growth. With expertise earned over centuries, Lloyd’s is the foundation of the insurance industry and the future of it. Led by expert underwriters and brokers who cover more than 200 territories, the Lloyd’s market develops the essential, complex and critical insurance needed to underwrite human progress.
Willis Towers Watson’s Insurance Consulting and Technology business has over 1,200 colleagues operating in 35 markets worldwide. It is a leading provider of advice, solutions and software – primarily to the insurance industry. Its consulting services help clients manage risk and capital, improve business performance and create competitive advantage – by focusing on financial and regulatory reporting, enterprise risk and capital management, M&A and corporate restructuring, products, pricing, business management and strategy.
Willis Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 45,000 employees serving in more than 140 countries and markets. We design and deliver solutions that manage risk, optimise benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas — the dynamic formula that drives business performance. Together, we unlock potential.
1 The average loss ratios and combined operating ratios (COR) are based on the 2018 calendar year and have been weighted by gross written premium. The overall (weighted) average COR across all Lloyd’s participants was 103%.
2 Excluding SPAs, SPSs, Life syndicates, RITC syndicates and Monoline syndicates.
