Lloyd’s Has ‘Laser Focus’ on Oversight of Coverholders to Proactively Avoid Market Risk

Lloyd’s has “a laser focus” on the oversight of delegated underwriting authorities to make sure these facilities do not drag down the market in the same way that poor management of managing general agents did in the past, according to Rachel Turk, Lloyd’s chief underwriting officer.

“If coverholders are not managed well, restrictions will be imposed on the ability to delegate authority,” said Turk in her market message for the second quarter of 2025.

“The market continues to want to increase the amount of delegation, whether that’s through traditional MGAs, newer algorithmic trading models or the increased adoption of structured facilities,” she said, warning, however, that increasing delegation can risk over-capacity and put downward pressure on rates.

Therefore, Lloyd’s managing agents must be clear about their strategic ambitions and why they are deploying a delegated strategy, Turk said, explaining that “doing it well is a prerequisite” for those who choose to embrace the business.

During a press briefing to discuss the Q2 market message, Turk noted that delegated authorities represent just under 40% of all business at Lloyd’s. She noted, however, that the term “delegated authorities” is very broad and includes consortia, single broker facilities, line slips, cross-class broker facilities, and coverholders, which all have different risk profiles.

She said the bar is very high for MGAs that apply to be new entrants and trade through a Lloyd’s syndicate. Syndicates should only support MGAs that are truly additive to their businesses and they must be sufficiently data-savvy to permit proper oversight of the delegation, Turk said during her formal market address.

“Likewise, if capabilities to underwrite large multi-class facilities are not in place, we will not allow you to write them.”

Turk went on to clarify what “capabilities” means with respect to large, cross-class facilities. The gold standard is a separate team with significant actuarial and data expertise that can understand the data and aggregations, while analyzing the impact on the syndicate’s in-force portfolio, she said.

“We will not allow passive followers. Everyone needs to have these capabilities in order to be approved to write these facilities. You cannot rely on the infrastructure of the leader on the slip,” she emphasized, explaining that Lloyd’s also is requiring the syndicate to have a fully thought through soft market strategy with predetermined key-performance indicators (KPIs) that would “trigger off-ramp decisions” by executives at the syndicate. (In other words, any business risk that doesn’t fit the pre-set KPIs would be red-flagged).

“To be crystal clear, trying to write these facilities from the ‘side of desk’ will not be tolerated and people just trying to enter this space have a very high mountain to climb to build the required capabilities in the timescales needed,” Turk continued.

The reason for such caution? Patrick Tiernan, the current and out-going chief of markets, who becomes Lloyd’s CEO on June 1, explained that it’s all about correcting the course before there is damage done – prospectively rather than reactively.

“If we don’t maintain discipline and sustain profitability, the rest won’t matter. It’s as simple as that. Moderating underwriting conditions typically manifest as slides, not ladders, and it’s pretty tricky to course correct when halfway down and picking up speed. If we want a soft landing, plan from the top and be deliberate,” he said in his market address.

“Poor management of coverholders could cause a problem. It isn’t causing a problem yet, but let’s make sure it doesn’t,” said Turk during the press briefing. “So that’s really the angle that we’re taking. It’s trying to be much more prospective than reactive because if we’re reactive – as Patrick said in his comments – we’re already part way down that slide. It’s very difficult to get off the slide, if you’re being reactive.”

Topics Excess Surplus Lloyd's