When I was studying stagflation at university, I never thought I'd actually see it in real life, but here we are. As winter closes in, inflation soars at a time when investment and employment may fall.
P&C insurers are pinning their hopes on continuing rate rises, but in many classes these are already reaching a plateau and meanwhile the cost of reinsurance is rising.
Just because the plumbing of the wider market remains stuck in Victorian times, and the way ahead may look precarious, doesn't mean you shouldn't carve out your own path to the future writes Paul Jardine.
Turning an ocean liner
With ongoing delays surrounding delivery of the Lloyd's market's Blueprint Two programme, it is clear that market participants will need to accelerate their own transformation journeys as we move into this critical next phase. Waiting for the market to catch up is not a luxury any of us have.
Reading between the lines, the Lloyd's CEO thinks the same. While insisting the next phase of the Future at Lloyd's programme will still be delivered in 2024, John Neal has admitted there is some "catching up to do".
Speaking at a recent event, he said the market was focused on building solutions to drive down the costs of doing business. But - and this is the critical point - it is ultimately up to insurers to "adopt and use those solutions".
He is right of course. At such a critical juncture, the smart businesses must decide whether to stay with the herd or take control of their own destiny.
It is not all doom and gloom. Despite major losses on both the underwriting and investment side, it looks as though Lloyd's is set for two consecutive years of profit - and this may well continue into 2023.
Meanwhile, rising interest rates will begin to bear fruit on the asset side as we move through 2023, while inflation comes off its peak.
At such a time, the same age-old questions around modernisation have never been more critical: When is the best time to invest in transformation and - if you're an individual business - how can you accelerate your own path to better service standards without being constrained by the slow progress of the wider market?
How and where do you deploy capital to gain more insights from your data and a better appreciation of risk in your business? How do you get your expense ratio down and really understand where you're getting your margin?
Without these answers it is impossible to make risk-informed decisions on whether you should grow rapidly in a particular class of business or risk category, or if you should pull back.
We are already seeing some very interesting business models emerge. This includes the decision by Fidelis to split its company by creating a managing general underwriter (MGU), separate from the existing balance sheet business and backed by private equity. It has the benefit of bringing in substantial new business against relatively low capital requirements, while keeping volatility off the balance sheet.
Inevitably, new structures will receive significant scrutiny. Lloyd's is taking no prisoners when it comes to ill-informed strategies for the year ahead, with underperforming syndicates already seeing their exposures cut by over 10%. The Corporation has warned they will be reticent to approve plans where market participants are 'cherry picking to cure a capital problem' .
Access to capital and liquidity is another question. Those with capital to spare will find it easy to grow rapidly at a time when the rest of the market is constrained. But where will the capital go if interest rates continue to rise (and some commentators think they could get to 8% in the UK). D Does insurance risk, with its diversification benefits, remain as attractive when the returns are more favourable in other asset classes?
It is clear that 2023 will be a year of big decision-making for syndicates in the Lloyd's market and that transformation and growth will remain a strategic imperative.
As we enter another complex and uncertain year there is no escaping the need for significant data, system and expense base improvements. Those who have lost their place on this journey will find that a cruel wind lies ahead.