Lloyd's keeps delegated business and facilities under close watch

By Rebecca Delaney

May 16 - (The Insurer) - Large cross-class broker facilities are likely to reach a "natural equilibrium" before the Corporation of Lloyd's is required to step in and implement constraints, chief underwriting officer Rachel Turk said on Thursday.

Turk was speaking at a press briefing following the Q2 market message, in which she warned that the Corporation would not allow large multiclass facilities to "drag down the market in the same way that poor management of MGAs did in the past".

"Interestingly, when you look at some of these big cross-class facilities, I think they'll come to a natural equilibrium," said Turk at the press conference.

"Certainly some of the ones that are a little more mature, the brokers are not intending to increase the number of syndicates on the slip next year. They're big enough, so I think there'll be a natural equilibrium without Lloyd's having to step in and put caps."

She added that the Corporation continues to focus on principles-based oversight, as opposed to a rules-based regime, which in this instance involves assessing whether syndicates have the capabilities to underwrite large multiclass facilities.

"The capabilities are complicated, there is a huge amount of data that comes through to it. This isn't something that you do as a side of desk," she said.

"If you're taking a massively diversified portfolio in – even if you're only taking a very small share of a very diversified portfolio – how do you know what it's doing to your peak risk, your natural perils and other exposures and aggregations, if you're not able to fully consume that data?"

She added that Lloyd's is engaging in open and frequent dialogue with brokers around the Corporation's expectations from a data perspective.

The latest market message outlined that delegated business in general remains under "laser focus" at Lloyd's, given that increased delegation can risk overcapacity and place downward pressure on rates.

"If you're not able to manage your delegation well, you will not be an outperforming syndicate. Therefore, you'll be lower down the categorisation, and therefore we're much more likely to be constraining plans," said Turk.

Delegated authority makes up just under 40% of Lloyd's business, although Turk noted that this does not translate to 40% of the market's gross written premium as the broad term – which encompasses consortia, single broker facilities, cross-class broker facilities and lineslips – has differing risk profiles.

"What we should be doing at Lloyd's, rather than looking backwards at how much GWP is in the market, is looking forward to what might the risks be and how do we prevent them crystallising into something that becomes a problem," Turk concluded.

"Poor management of coverholders could cause a problem – it isn't causing a problem yet, but let's make sure it doesn't. That's really the angle that we're taking; it's trying to be much more prospective than reactive."