Rate or pricing reductions occur when there is market softening and may result in the Risk Adjusted Rate Change (RARC) achieved by a syndicate being lower than planned. In such circumstances, it will usually be the case that syndicates will either write less business than planned to maintain the same rate adequacy or that the price adequacy on business written will be less than planned, potentially resulting in a higher loss ratio than planned in the SBF. In both circumstances, there may be a consequential effect on profitability and the Insurance Risk element of the syndicate’s approved SCR.
If a syndicate expects that rate or price reductions may result in its performance materially deviating from its approved business plan then its managing agent must inform its Syndicate Performance Manager who, in conjunction with the managing agent will determine if a revised SBF needs to be submitted. The agent must also assess the impact on capital and in conjunction with Lloyd’s determine if a re-submission of the SCR is required.
A similar and equivalent approach will be adopted by Syndicate Performance for considering and monitoring pricing rate reductions as that set out in the section on Overwriting.
As highlighted in the section on Overwriting, the requirement to inform Syndicate Performance of any material deviation from the SBF is derived from the Underwriting Byelaw (paragraphs 25 and 26), 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 expect to deviate from the plan.