Highlights Solid achievement in the first six months with a profit of £1.19bn
and RoC of 10.7%1 Combined ratio of 89.5% outperforms that of our competitor group for H1 by 3.3 percentage points Net resources of £22.8bn Pricing continues to be under pressure in an intensely competitive environment Investment income reduced in first half of year and future returns are uncertain due to volatility in financial markets
Questions for a soft market How are you giving away the pen? How are you managing loss reserves? How do I address increasing broker concentration? How should my business respond to deflation? How am I staying on top of Wordings? How am I taking advantage of the soft market experience in my
organisation? How am I participating in the market’s pursuit of innovation? How am I growing new underwriting talent? How am I buying my reinsurance?
Why the review? Significant increase in the use of aviation facilities reported Market participants voiced concern over some of the features of
these arrangements Lloyd’s needed to better understand the nature and scope of these < Picture to go here >
facilities and syndicates’ approach to writing them Primary focus: • Lead / follow arrangements • Information disclosure / monitoring • Lloyd’s Minimum Underwriting Standards (LMUS) and reporting
high level context 120 aviation lineslip facilities written in Lloyd’s via 26 brokers 85% are syndicate led with substantial capacity provided in Lloyd’s 15% of Lloyd’s aviation premium via lineslips but this may materially
understate true picture < Picture to go here >
Some syndicates write 25‐30 facilities Some brokers have 20‐25 facilities Individual broker facilities often varied in nature and type but
sometimes not obviously different from one another
Underwriting Controls Substantial flexibility afforded to brokers with broad authority
granted to leaders Poorly defined protocols and services Inconsistent or unclear leader provisions and ambiguous wordings Lack of transparency between leaders and followers with potential
for adverse selection Insufficient or untimely disclosure information and inadequate
monitoring of business declared Unrealistic EPIs and generous reporting thresholds Indication of weaknesses in peer or independent review
Data Quality, Price & rate Monitoring and Exposure mgt Untimely or inconsistent reporting by the broker Insufficient disclosure information to monitor pricing and/or
exposures Inadequate risk recording, and hence exposure recording, in
underwriting systems Passive analysis of business declared inhibiting the monitoring and
measurement of price and rate change Unclear operation of limits, unrestricted accumulation risk
Reporting - PMDR Significant variation in reported rate change on the same lineslips Extreme variation in reported benchmark price relativities Some fields left blank Some syndicates returning no data despite writing multiple lineslips Inconsistent use of UMRs with data logged at facility level and/or
Conclusion Lineslips are an efficient placing mechanism but they can present a
prudential risk if not properly managed Weaknesses in the assumption, distribution and reporting of risks Syndicates sometimes challenged to meet Lloyd’s Minimum < Picture to go here >
Standards, particularly when following Reporting to Lloyd’s is inconsistent and potentially unreliable
Recommendations Greater transparency and trust between leaders and followers Improved model wording for underwriting agreement A clear understanding of the breadth of authority granted to leaders
– followers must be vigilant
< Picture to go here >
Clarity in the articulation of coverage, limits, basis of line size and
description of broker services Accurate measurement of each risk assumed Proper monitoring and analysis of risks declared Effective peer and independent review of lineslips
Pricing methodology Standards* For Managing Agents: 1.4.1
Pricing Policy explains how pricing will deliver planned results
1.4.2
Benchmark premiums are supported by experience/exposure data Expected loss ratios and rating factors for each risk Models reviewed at least annually and recalibrated as appropriate Explicit pricing for attritional/large and cat losses Recorded pricing rationale Written pricing guidelines
The Data Credibility Challenge Illustrative Example of Rate Change and Price Benchmarking Report Premium Monitoring
Rate Change
PMDR Benchmarking
PMDR Plan Pure PMDR Price Price % Policies Pure Rate Rate Plan SGP PMDR SGP as Adeq' Adeq' with Full Yr SGP YTD % Full Change Change B'mark New Risks Rw'd Risks (£million) (£million) Year (RARC) Full (RARC) Price YTD Only YTD Only YTD YTD Yr Plan Property Marine Accident/Health Energy Reinsurance Aviation Employers Liability Professional Indemnity Terrorism/War