Overwriting

If a syndicate wishes to overwrite, its managing agent must obtain prior approval from Syndicate Performance who, in conjunction with the managing agent, will determine if a revised SBF and SCR needs to be submitted.

Note:

• Managing agents should contact their Syndicate Performance Manager if they require clarification as to whether a particular variance of GWP for a class of business would be considered ‘material’. The key considerations will include the size of increase and the impact on capital requirements resulting from a change in the composition of the whole account portfolio.
• The Syndicate Performance team use the Quarterly Monitoring Return (QMB) and the PMDR Return to assess the expected premium volume for the year. The Syndicate Performance team takes into account fluctuations in exchange rates when monitoring premium volume. This ensures that Lloyd’s is comparing the plan and PMDR on as consistent a basis as possible.
• The requirement to inform the Syndicate Performance team of overwriting is derived from the Underwriting Byelaw, which requires that managing agents should write in accordance with a syndicate’s approved business plan and provides that managing agents should notify Lloyd’s where they deviate from the plan [see paragraphs 3 and 4 in Consolidated Requirements Part 2 > Core Activities and Roles > Underwriting > Underwriting]. There is also a separate requirement on managing agents under the Underwriting Byelaw to take reasonable steps to ensure that they do not write in excess of the syndicate’s capacity (as calculated based on Gross Net Premium) (paragraph 37). Writing in excess of the syndicate’s approved GWP or exceeding its capacity may therefore be a breach of Lloyd’s byelaws.

If a syndicate has identified that it may overwrite or if it wishes to obtain Lloyd's agreement to overwrite, the Syndicate Performance team will wish to discuss the following points:

• The reasons for overwriting – ie due to new business, better rates, failure of controls etc
• The effect of overwriting on the syndicate's capital requirements
• If applicable, any franchise guideline dispensations
• The procedure taken for notifying the syndicate's capital providers and whether their approval has been obtained
• Whether the SBF and SCR need to be resubmitted
• The profitability of any additional premium and the impact on class and syndicate performance

Where a syndicate fails to notify the Syndicate Performance team that it may overwrite and subsequently the QMB, PMDR or other core market returns show that the syndicate has actually overwritten, the Syndicate Performance team will, in addition to the above considerations, also wish to review the effectiveness of management controls. The risk of premium volumes exceeding plan will be taken into account when agreeing both business plans and SCRs.

As noted, it is a byelaw requirement for managing agents to take reasonable steps to ensure that they do not write in excess of the syndicate’s capacity. Where a syndicate is seeking permission to overwrite it will also need to consider if the overwriting will result in the syndicate exceeding its capacity (calculated on a Gross Net Premium basis). Where a syndicate is wholly aligned or has a small number of members and where all those members give express agreement, it is permissible for a syndicate to increase its capacity (referred to as pre-empting) mid-year as part of obtaining agreement to amend its plan to accommodate any proposed overwriting. Any increase in capacity should be recorded in the revised SBF.

For non-aligned syndicates with larger memberships, it will not be possible in practice to obtain the positive consent of each member to a pre-emption mid-year and so a mid-year pre-emption of capacity to allow for additional GWP will not be possible.

In exceptional circumstances, however, the Underwriting Byelaw [see paragraph 3(a) in Consolidated Requirements Part 2 > Core Activities and Roles > Underwriting > Risk management requirements > Syndicate premium income] gives Lloyd’s discretion to permit a syndicate to write above its capacity. Managing agents that require permission to exceed their syndicate’s capacity should contact the Syndicate Performance Team. Permission will only be given where the managing agent can provide a robust justification for exceeding capacity, receives appropriate agreement from Lloyd’s to any proposed change to its business plan and can demonstrate that it has sufficient capital to support the additional business. In addition, the managing agent must provide written evidence of support for the overwriting of capacity from each direct corporate participant on the syndicate and from each of the members’ agents that has one or more members participating on the syndicate.

Any agreement to exceed capacity will only be given for the remainder of the year of account in question. For the following year of account, the syndicate will be expected to write within its existing capacity or to pre-empt in accordance with the Syndicate Pre-emption Byelaw.

Managing agents are strongly encouraged to ensure they have sufficient headroom in their capacity to avoid the risk that they may exceed it.

Lloyd’s uses QMB, PMDR and other core market returns to monitor several aspects of performance, one of these being the amount of GWP written. More specifically Lloyd’s looks at:

• Whether GWP is in line with the approved plan and if there is a potential for overwriting compared to the plan.
• For non-aligned syndicates whether there is the potential to overwrite syndicate capacity.
• Comparison to previous years written premium development patterns.

If as a result of analysis of the QMB and PMDR (and any other relevant data sources), the Syndicate Performance team identifies that current GWP volume when trended for ultimate development is likely to exceed plan, the Syndicate Performance team will inform the managing agent accordingly and seek confirmation from them in writing as to their position. In the first instance, however, it is for managing agents to monitor premium volumes against their approved plans, in order to identify if they are likely to overwrite and to take appropriate action, including notifying the Syndicate Performance team.