In the ever-evolving world of insurance underwriting, traditional practices have given way to technological advancements. While brokers once had to physically visit Lloyd’s underwriting room to seek follow capacity, the landscape has shifted dramatically.
Nowadays, online broker platforms allow for risk placement, enabling underwriters to access crucial information through APIs. However, even with this digital transformation, the decision to follow a leader and offer capacity remains crucial.
Historically, past performance has been considered a reliable indicator of future success, particularly when examining past relative gross underwriting performance. Analysing the 2022 gross property underwriting results at Lloyd’s reveals that only a few syndicates incurred substantial gross losses, likely attributed to Hurricane Ian.
Nevertheless, a significant gap between gross and net underwriting results suggests that numerous syndicates shared a substantial portion of their income with reinsurers. At this point, it becomes imperative to determine if a syndicate’s performance within this distribution was essentially random.
Specialist analytics and consulting firm Insurance Capital Markets Research’s (ICMR) research has observed that relative performance is far more stable than absolute performance.
A syndicate that ranked within the top quartile in one year is highly likely to maintain its position the following year.
This stability also holds when transitioning from syndicate-wide results to results within specific classes of business. Consequently, it becomes feasible to construct league tables showcasing syndicate performance at a class of business level.
Further substantiating this consistency are quartile performance transition matrices. These matrices reveal the probabilities of syndicates maintaining their relative advantage or disadvantage year after year.
Regardless of whether Lloyd’s reports an overall market profit or loss, the data shows that syndicates are most likely to sustain their relative position over time, rather than experiencing significant improvements or deteriorations.
Understanding these relative performance patterns, especially at the class of business level, is essential for comprehending and parameterising follow-only underwriting decisions.
