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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 ESG integration into underwriting

Below are some of the frequently asked questions about this Principle, including the questions that were asked in the Technical Briefing session(s).

If you have any further questions, please reach out to Oversight.Framework@lloyds.com

Underwriting Profitability

We will be looking at two factors:

1) Propensity to deliver an underwriting profit

Whilst you will be familiar with Lloyd’s use of normalised data, for this measure we will be giving more credibility to actual profitability and therefore the NCR metric used will exclude any COVID losses.

The rationale behind this is that we recognise there are ‘black swan’ events that cannot be planned for and their impact should be considered when evaluating historical performance. 

The QMA800u major loss data will be used as the means of removing COVID identified losses from your overall loss estimates.

2) Propensity to meet plan

We will be using the NCR excluding COVID losses and measure this against the planned NCR in the SBF. We have built in a threshold to this measure whereby if a syndicate achieves an NCR (excluding COVID) on a year of account basis of under 95% and misses plan, full weight will be given to the underwriting result rather than the plan miss.

Both of these quantitative measures will be applied to each of the last 3 full years of account.

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

The quantitative metric was agreed at 3 years after extensive review of the various options. The qualitative overlay provides the opportunity to calibrate further and take into consideration both long tail and catastrophe exposed syndicates. This assessment will take into consideration your performance versus peers and ability to manage your portfolio effectively.

The assessment is at whole Account level, and over 3 years. We would expect remediation to be evident in the progress across these years and will review accordingly. The qualitative overlay provides the opportunity to calibrate further and take into consideration the effectiveness of the remediation activity both planned and executed. We will also take into consideration your performance versus peers and ability to manage your portfolio effectively.

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
    • ESG
  • Syndicate self-assessment submissions
  • Any additional information as may be deemed relevant as it pertains to each syndicate

In order for a syndicate to be considered for a categorisation of ‘Outperforming’, it must be classed as ‘Meets Expectations’ across all 13 principles and be within the top market quintile for performance relative to peers. For this purpose, performance will be defined based on syndicates’ average actual NCR over the last full 3-year period, with more weighting given to the most recent year.

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.

Not really at this stage. In terms of the pilot, we were trying to create and improve the maturity matrix and approach to assessments. We are expecting to see more trends / themes over the next few months as we do more Pricing Maturity Matrix (PMM) assessments.

Broadly speaking, we’ve made a commitment to assess all syndicates and SPAs are being caught up in that too (a syndicate workshop will cover related SPAs at the same time)

When the oversight letters went out they had rough dates included. These went to active underwriters, and we’ve been working with syndicate performance managers to make sure when we send out scope documents they go to all the right people. If you’re concerned, get in touch for your specific dates.

Managing agents will have to self-assess against all Principles by the end of April but the pricing element (sub-principle 6 of Underwriting Profitability) is optional from a managing agent’s point of view. All pricing assessments will be facilitated through the Pricing team and will be completed by the end of June.

Yes and no… the primary objective of the BPPF was to help design a matrix and an approach to oversight and capability improvement, not necessarily an assessment. When we look to do PMM assessments for syndicates involved in the pilot, we will try and make it as easy as possible. Where we have enough information from the pilots, we will base out assessment on that. Where we don’t have sufficient information, or where the matrix has changed considerably, there may need to be a brief workshop with syndicates to finalise the process.

The plan is to have completed facilitated assessments for all syndicates by the end of June. The pricing team is currently working with syndicates to get workshops in place.