17 years of Lloyd's Performance Management

Was it worth it? Time will tell.

It is now 17 years since the Lloyd’s Chairman’s Strategy Group Consultation paper laid out the current performance oversight regime at Lloyd’s. As we are waiting for the announcement of the new Chief of Markets we ask ourselves the question; has Lloyd’s Performance Management Directorate positively affected the life cycle of syndicates?

To answer this question we use our ICMR.Matrix tool again to analyse a syndicate’s lifecycle, from inception, through ramping up, and how it responds to favourable and unfavourable market conditions, look at when it started and under whose watchful PMD director’s gaze they have developed.

To recap, ICMR.Matrix splits all syndicates by relative performance and relative capital efficiency. This segments the market into four quadrants:

  • Value Creators: Syndicates in the top right quadrant with consistently better performance who get credit for this with more efficient capital and consequent higher returns on capital, which in turn enhances their value
  • Preferred Security: Syndicates with better performance, but whose capital requirement is higher than expected, reducing return on capital but providing greater comfort to their assureds and reassureds
  • Growth Opportunities: Lower than median performing syndicates, who nonetheless have established more efficient capital requirements, allowing them the opportunity to focus on their more profitable lines of business without significantly altering their capital efficiency
  • Opportunistic Counterparties: Poorer performing syndicates whose capital reflects this, where all startups begin and from where, unless their strategy plots a journey into other quadrants, they will eventually fall into the run-off market

We can now use the concept of the ICMR.Matrix to analyse how long it takes for a new start-up syndicate to escape the bottom left quadrant of doom. All start-ups have upfront cost and have higher capital loads than established syndicates so start life in this quadrant. Comparing syndicates which started under differing regimes with where they sit in the Lloyd’s universe today can give some insight into how effective that regime was. The chart below shows the current Lloyd’s syndicate landscape at year end 2019 categorised by PMD director under whom those syndicates started trading.

Interestingly most top performing syndicates (ie those dominating the top right ‘Value Creator’ quadrant) started prior to the establishment of PMD (the red dots). The fruits of the first PMD regime under Rolf Tolle have begun to show through in the population of the top right quadrant, however none of the second or third regimes’ start-up syndicates can be found there yet. A mischievous mind might argue that latterly the PMD has been much less effective, but that neglects the most important dimension of all; time. Whilst none of the more recent syndicates from Tom Bolt’s or Jon Hancock’s time can be found in the top right quadrant yet, the crucial point is those syndicates’ direction of travel.

The next plot shows the movements of those syndicates which started under Tom Bolt’s regime from year end 2016 to year end 2019.

With one clear exception, all those syndicates have progressed their journey in favourable directions within and between quadrants. We must point out that not all start-up syndicates from that era made it. However, what the ICMR.Matrix shows is that Lloyd’s start-ups need a long runway and investor patience to lift off. Demonstrating year on year progress should give those syndicates and their investors comfort that the top right quadrant of value creators can be reached, as well as Lloyd’s comfort that the PMD continues to do valuable work, albeit not always to an investor’s preferred timescale. It will be fascinating to observe if syndicates-in-a-box will be able to accelerate this syndicate life cycle journey in the future.

To learn more about ICMR.Matrix download our brochure and book a demo.