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Principle 1: Underwriting Profitability

Managing agents should produce and execute syndicate business plans which are logical, realistic and achievable and ensure the delivery of a sustainable profit, including expense management.


To support this, managing agents should ensure their syndicates: 

Have a clear and robust medium to long term business strategy with clearly defined and understood underwriting risk appetite

Develop and execute annual business plans which align with their business strategy

Have underwriting controls, monitoring and reporting in place which are appropriate to their risk profile in order to deliver the agreed business plan

Manage and control expenses in order to ensure they are appropriate for the business written

Have robust portfolio management in place in order to deliver the agreed business plan

Have an effective pricing framework in place in order to evaluate sustainable technical price, rate adequacy and deliver sustainable profit

Have robust governance processes in place to support underwriting decision making, with underwriting assumptions clearly articulated and understood by stakeholders supported by proactive involvement and sufficient challenge by the wider functions

Have processes in place to support decision making in relation to integrating sustainability into underwriting

Underwriting Profitability Maturity Matrix

The Maturity Matrix for Underwriting Profitability is available within the Principles and Maturity Matrix document, which can be found on our Principles for doing business at Lloyd’s page. 

Access Principles and Maturity Matrix document

FAQs

Underwriting Profitability

 We will be looking at two factors:

1) Propensity to deliver an underwriting profit.

2) Propensity to meet plan.

Both of the quantitative measures will be applied to each of the last 3 full years of account as a start point with an additional overlay to take into consideration other quantitative factors, particularly for long tail and syndicates with high planned volatility. Assessment against your own Willingness to Lose statements will be incorporated where pertinent.

For this purpose, we are defining a profitable syndicate as one that has achieved an NCR of under 100% in any given year.

Yes. The start point quantitative metric was agreed at 3 years after extensive review of the various options. The additional overlay provides the opportunity to calibrate further and take into consideration other relevant quantitative information. This includes appropriate assessment of long tail and catastrophe exposed syndicates. This assessment will take into consideration your performance versus peers and ability to manage your portfolio effectively.

The start point quantitative metric was agreed at 3 years after extensive review of the various options. The additional overlay provides the opportunity to calibrate further and take into consideration other relevant quantitative information. Clear evidence in the figures of the impact of remediation is expected before full credit will be given.

We will overlay the quantitative output with a qualitative assessment conducted by relevant oversight teams. This will take into account:

The Underwriting Profitability Maturity Matrix and its 8 sub-principles covering:
Business Strategy
Business Planning
Underwriting Controls
Expenses
Portfolio Management
Pricing
Governance
Sustainability
Syndicate Attestation submissions

Lloyd’s is re-evaluating the criteria for awarding ‘Outperforming’ status. The new criteria will reflect longer-term performance alongside the continuing requirement to ‘Meet Expectations’ in all dimensions.

We will advise syndicates of the business planning process through normal communication channels (e.g., Market Bulletin/Market Message) in May.

Pricing Maturity Matrix

Assessments will be based on the Pricing Maturity Matrix which has been designed to cover all types of business. While there are challenges surrounding this, we don’t envisage a massive difference in approach for lead follow. The initial pricing materiality of a syndicate will be based on size, in line with Underwriting Profitability. During the assessment, this materiality will be refined based on the mix of business written, using characteristics such as homogeneity of risk, volume of policies, available data and possibly proportion of lead / follow.

Yes, the pricing assessment will apply to delegated business. There is a specific component that relates to DA pricing and alignment with wider syndicate pricing strategy. Also, many of the other components in the pricing matrix are applicable to DA business as well as open market – for example, data quality, capture of expert judgement.