How Lloyd’s Project Rio and ‘Principles of Doing Business’ will impact pricing

Lloyd’s recently released a 156 page document titled ‘Principles of Doing Business’, which outlines the responsibilities of all managing agents. To help companies quickly digest this and ensure they stay compliant, hyperexponential has released a report summarising the key takeaways.

The goal of the ‘Principles of Doing Business’ is to establish an efficient and joined-up approach in the Lloyd’s market, supporting the best businesses to flourish, whilst intervening with underperforming businesses.

hyperexponential indicated that the last point is very important. The 13 principles that cover performance, solvency and operational areas are not just guidance on best practice; each managing agent will be assessed on their compliance to the principles and the outcomes they have generated.

Syndicates that have high performance will be rewarded with a lighter touch in terms of business reviews, receive reduced syndicate loading and be promoted in external Lloyd’s campaigns.

On the reverse, those that are deemed to have underperformed or are below the expectations, could be met with mandatory remediation programmes, restrictions on their growth plans and even forced changes to senior individuals.

Project Rio’s effects on pricing?

hyperexponential pulled out three specific principles that will have the biggest impact on pricing, however, each of the principles will have some degree of influence.

The first of the three is underwriter profitability. The report states that 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.

The next is catastrophe exposure. It states that managing agents should ensure syndicates maintain appropriate control of catastrophe risk, both natural and non-natural incidents, in line with their wider business strategy.

Finally, it highlights the customer outcomes principle. This states that managing agents should embed a culture and associated behaviours throughout their business to consistently focus on good customer outcomes and providing fair value.

Rising admin burdens on pricing teams

One of the biggest impacts hyperexponential sees this causing is an increased time spent on administration workflows. It stated that actuaries and underwriters are already overwhelmed by admin tasks and these requirements will only add to them.

It said, “At hx, we believe this is a catalyst for change and for Lloyd’s syndicates to embrace a modern pricing tool that enables them to structure the data of each model and gain a live view of their compliance with the principles. In this tool, reporting is simplified and automated, providing analysis of each model and allowing cross-portfolio visibility, a task that currently can consume months of effort.”

Finally, the report outlined some important areas hyperexponential believes pricing teams should explore.

The first of these is automating the ingestion of real-time internal and external data into pricing models.

It also suggested teams look to enable real-time monitoring of underwriting limits, breaches, aggregate and pricing adequacy.

Other suggestions are implementing portfolio management processes that include comprehensive scenario modelling, creating a consistent approach to attritional and cat pricing, and having the ability to track deviation from technical and market price.

hyperexponential has released a full insights guide that examines what the principles mean for Lloyd’s Syndicates. Find the full report here.

It was recently revealed that hyperexponential has helped QIC Global, a Qatar-based insurance organisation, to reduce model adjustment times by four-times within the first 100 days of using the hx Renew solution.

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