The impact of Project Rio and the Lloyd's Pricing Maturity Matrix on specialty insurance pricing

Earlier this year, Lloyd's launched their 'Principles of Doing Business,' a comprehensive framework that sets out the responsibilities of all managing agents. The specific aim of these principles is to create a more efficient and joined-up approach in the Lloyd's market, supporting the best businesses to thrive while driving decisive intervention for underperforming businesses.

This last point is significant. The thirteen principles covering 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 who perform well and outperform will be rewarded with a lighter touch in terms of business reviews, will gain reduced syndicate loading, and be promoted in external Lloyd's campaigns. Those that underperform, or are well below expectations, could face mandatory remediation programmes, restrictions on their growth plans and even forced changes to senior individuals.

How does Project Rio affect pricing?

Whereas, to some degree, each of the principles will have an impact on pricing, three specific principles will have the most significant impact:

Underwriter 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.​

Catastrophe Exposure: Managing agents should ensure syndicates maintain appropriate control of catastrophe risk (from natural and non-natural perils) in line with their wider business strategy.

Customer Outcomes: Managing agents should embed a culture and associated behaviours throughout their business to consistently focus on good customer outcomes and providing fair value.

Increasing the administrative burden on pricing teams

 Actuaries and underwriters are already spending a significant proportion of their time on administrative tasks where all they want to do is focus on developing better pricing models. The additional requirements to evidence their compliance to the Lloyd's 'Principles of Doing Business' is only set to increase this unless something changes.

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.

How can we drive and demonstrate better outcomes?

It is not just a case of complying with the 'Principles of Doing Business.' Managing agents must demonstrate outcomes they have generated to outperform the market.

We see this again as a driver to transform pricing and leverage the technology available to streamline processes, simplify complexity and build better pricing models.

Some of the key areas we believe that pricing teams need to be looking at include:

• Automating the ingestion of real-time internal and external data into pricing models.

• Enabling real-time monitoring of underwriter limits, breaches, aggregate and pricing adequacy.

• Having in place portfolio management processes which includes comprehensive scenario modelling

• Creating a consistent approach to attritional, large and cat pricing, in line with business planning

• The capability to track deviation from technical and market price.

• The ability to report directly from pricing models, including granular detail of individual peril regions.

The hyperexponential tea has reviewed the details of the Principles of Doing Business at Lloyd's. We've produced insight guide that steps you through our summary of what the principles mean for Lloyd's Syndicates, particularly the far-reaching requirements for pricing, underwriting and reporting. Get the guide.