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Aon publishes Lloyd's CFO survey findings

A new report from Aon reveals findings from a survey of Lloyd’s managing agents’ CFOs and provides an overview of how capital and business strategy are connected within the Lloyd’s market.

The How CFOs Connect Capital and Business Strategy report analyses an online questionnaire completed by CFOs at 28 Lloyd’s managing agents, representing 75% of the market’s capacity. It was a collaboration between Aon’s UK Capital Advisory team and the Lloyd’s Market Association (LMA).

Aon says the CFO role has evolved to integrate functions from actuarial, capital, risk and underwriting.

The survey found 87% of survey participants wanted to increase their stamp capacity at Lloyd’s and many were striving for better integration between underwriting and capital strategies.

“The type of capital at Lloyd’s continues to shift, following restrictions on the use of Tier 2 Capital, such as Letters of Credit,” Aon says.

Average tier 2 utilisation was just 28%, well below the current Lloyd’s limit of 50%, due mostly to availability of capital from parent firms or an internal debt threshold.

Across the sample, average return on capital was 12%, well above estimated cost of capital of about 7%. Intragroup reinsurance was utilised by 78% of participants.

“The report reveals that for most survey respondents, capital availability was not a constraint for growth, a trend highlighted in the underutilisation of Tier 2 Funds at Lloyd’s. Respondents generally agreed that capital optimisation was critical in developing a dynamic and proactive approach to capital management.”

Aon says an emerging focus point was managing the volatility of underwriting returns by explicitly looking at a variety of return periods. It says 40% of respondents implemented this.

See the report here.