Pensions - Articles - London Market increasingly turning to portfolio management


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-inclass 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:

 • Granularity: Segmentation and mix indices were done well or very well.

 • Data and technology: Very satisfied in current tools, aside from data science for unstructured data, but confident in improvement.

 • Spreadsheets: Limited reliance on spreadsheets (not at all to somewhat reliant).

 • Plan testing: Confidence in robust plan testing and satisfaction in scenario modelling.

 • Speed: Syndicates identify and respond within a day to a fortnight

 • People skills: Do well / extremely well in developing portfolio management skills and satisfied in the level of skills.

 “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.  

  

 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. 

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