Ownership: The managing agent's board is responsible for the managing agent's business planning process. This will normally be achieved by a director being nominated to take responsibility and ensuring that the director and supporting staff have adequate time and the requisite skills and experience to manage and execute the process effectively. The business plan should be approved by the managing agent's board.
Strategy: To support the business planning process, it is expected that each managing agent will have a written underwriting strategy that:
- Explains how it will deliver the targeted returns over the underwriting cycle, to appropriate levels of detail for each syndicate (including gross premium and losses, and key business assumptions) over a three year horizon.
- Identifies the managing agent's strengths and weaknesses.
- Identifies any significant external factors that either support or inhibit the managing agent's strategy.
Developing the managing agent's Business Plan: The managing agent's business plan will typically contain the following elements:
- A defined risk appetite, both gross and net of reinsurance.
- Each syndicate's risk accumulations, as included within the ICA. These risk accumulations should be within the existing 'Franchise Guidelines' issued by Lloyd's, other than where exceptions have been granted by Lloyd's (further details is included within the Additional Notes that follow).
- A projected % ROC that is reasonable, both gross and net of reinsurance, for each syndicate class of business - capital projections should be on the same basis as the relevant ICA.
- The forecast ultimate loss ratios at an appropriate level of detail. (Ideally, defining the attritional, large and catastrophe loss components).
- A proposed reinsurance programme defined in terms of limit, cost and reinstatement. (Ideally, also setting out, security by rating tier, recoveries assumed and any other features deemed to be material by the managing agent).
- All material assumptions by each major category of underwriting.
- The business plan will normally contain an explicit consideration of the resources required to execute the plan.
A copy of the business plan should be made available to Lloyd's on request.
Challenge and Approval: The business plan, including the underlying assumptions, should be subject to rigorous challenge by appropriate staff with significant issues documented, prior to being submitted to the managing agent's board. Challenges would typically include stress and scenario testing. The managing agent's board will normally consider the content and outcome of the challenges as part of their review process, prior to considering approval of their business plan.
The managing agent's assessment of the adequacy of existing resources and its plans to address any resource shortfalls are likely to include people, processes, skills, operating 'culture' and networks.
