News that Lloyd’s is undergoing a strategic review of its operations may be part of a larger industrywide phenomenon—reality is setting in and underwriting pain is increasing, an industry executive said last week.

Markel Corp. Co-Chief Executive Officer Richie Whitt made the observation during his company’s earnings conference call, on which leaders also reported a 13 percent jump in operating income for the second quarter.

“Interestingly, you can see underwriting pain beginning to pick up in the market, whether it would be Lloyd’s franchise drive to remediate underperforming lines of business or companies having earnings misses due to underwriting misses. Underwriting pain is increasing,” he said.

Markel reported $97.4 million of underwriting profit for the quarter on nearly $1.2 billion of net premiums—with the bulk of the underwriting gain coming from insurance operations, $74.3 million, roughly the same as second-quarter 2017.

“I have also personally noted that many more of today’s insurance headlines are about insurers going out of lines of business, while a year ago, all the news seemed to be about insurers entering new lines of business or adding underwriting teams,” Whitt said.

“There are also clear signs of inflation pressures building in the real economy,” he added. “Full employment leading to wage inflation, tariffs leading to increases in commodity costs and replacement costs, and the gradual erosion of tort reform are all leading toward rising claims cost inflation. Every day at Markel, we are stressing to our underwriters the absolute necessity of price increases and underwriting discipline,” he said.

“Unfortunately, as has been proved over and over again, severe underwriting pain is required before the insurance industry will collectively get its act together and price risk appropriately. At Markel, we see the pain coming and we are working hard to ensure that we are not impacted when it gets here.”

Later during the call, an analyst returned to the news of Lloyd’s performing a comprehensive review and asked Whitt whether he is seeing behavioral changes in Markel’s relevant markets.

“I think so,” Whitt said. “In the last several months, particularly since the Lloyd’s announced their drive to work on…lines of business that were hurting the market, you’re seeing people move out of lines of business or teams leaving. So I think reality is starting to set in.”

Separately, several publicly traded insurers announced tweaks to their underwriting strategies, and their Lloyd’s books in particular, during recent earnings calls.

At CNA, CEO Dino Robusto described changes to the CNA’s Hardy Syndicate at Lloyd’s, which will see the Chicago-based insurer refocus the syndicate on lines where CNA is successful in other parts of the world.

Responding to an analyst who observed that CNA’s international business had a higher combined ratio than the rest of the business over several quarters, 104.7 in the second-quarter of 2018, Robusto said Hardy has been the international area “that’s been most strained” in terms of loss ratio and combined ratio. And that is “where we are and have been shifting over the course of the last six quarters [away] from the standard Lloyd’s type products—the marine, the shared-and-layered property, cat treaty,” he said.

Where “we want the Lloyd’s syndicate to be is principally the target markets that we have expertise in,” he said, noting that CNA is working to replace the standard Lloyd’s products with healthcare, technology, life sciences and certain aspects of our construction business.

“That’s a process that takes time and it has been going on,” he said, also referring to an “evolution away from things like aviation, running off political risk. We had a very unprofitable A&H [book], and we had some of our classic cat property which we’re moving away from,” Robusto added.

At Aspen Insurance Holdings Limited, CEO Chris O’Kane said his company is moving out of marine hull, aviation and some professional lines at Lloyd’s while allocating more capital to lines like cyber, management liability and financial institutions.

Explaining exits, which represent about $170 million of business for Aspen, O’Kane described marine hull as a highly commoditized business. “We happen to have a very good team though on the Lloyd’s platform. That is the most expensive platform we have and the cost is not within our control. And the way the brokers behave there, [since it’s very commoditized] I think it’s just very very tough.

“Even though our loss ratios are—they’re not great, but they’re not lacking in respectability. But combine them with the kinds of strategic downwind and a high expense base, [exiting] made sense to us,” he said.

In aviation at Lloyd’s, he said, “We’ve got a great track record there but I think the world has moved on and we don’t think that aviation is a place where we want to put our capital in the future.

“Finally, professional liability is a terrific line for us, led in the U.S. by Bruce Eisler. He’s done fantastic things in his six or seven years with the company. But at Lloyd’s it just wasn’t working and [Bruce has said] we should put our capital elsewhere” to get a real return.

Separately, in mid-July, Advent Capital Holdings and Brit Limited announced the potential combination of some of their Lloyd’s businesses. “The decision was in response to the strategic challenges currently facing Advent as it has been thriving to build a significant presence in target areas of business in an extremely competitive marketplace,” said Prem Watsa, Chair of Fairfax, the parent company of Advent and Brit during Fairfax’s earnings conference last week. (Editor’s Note: Watsa’s remarks were taken from a Seeking Alpha transcript of the event.)

A July 11 press release notes that Advent, which has been doing detailed reviews aimed at optimizing its own underwriting portfolio and business models, “will now focus of working with Brit to consider which parts of the portfolio…can be transferred, as well as plans to run off the remainder of the business.”

Jon Hancock, director of Performance Management at Lloyd’s, commented on the efforts in the Advent press statement. “We welcome the collaboration with and support of the wider Fairfax Group in showing leadership in exploring ways to enhance not only their group’s Lloyd’s business performance but also to contribute to overall market performance improvement,” he said.

“As you would expect, we are taking care of all our employees at Advent,” Watsa said during the Fairfax conference call.