Lloyd's of London has set out six principles to guide its actions following a major catastrophe that will cause some syndicates or members to be wiped out, and insurance pricing to soar.
Syndicates had expressed worries that the greater bureaucracy now in place to ensure underwriters remain solvent would hamper the ability of the market to react to a major event and take advantage of a rapid hardening in pricing.
The Lloyd's paper responds to recommendations following a dry-run exercise last year, involving Lloyd's and the UK's prudential regulator.
Three of the six principles cover crisis management, with Lloyd's stating that its primary focus is market stability and ensuring claims are paid quickly. Failing syndicates and members will be run off in an orderly fashion, and Lloyd's will take a lead on communicating with external stakeholders (e.g. regulators, governments, rating agencies).
The other three principles focus on the opportunities. Lloyd's said it would support the market, with existing businesses maybe being prioritised ahead of new entrants, and it could suspend non-essential activities to divert resources accordingly.
Most importantly for syndicates, Lloyd's said it would aim to accelerate the review and approval processes for business and capital plans.
The Prudential Regulation Authority (PRA) has previously stated its position on a market-turning event.
Lloyd's and the PRA emphasised the responsibility for managing agents to prepare contingency plans for a market-turning event.
Lloyd's stated that managing agents should be able to measure the impact and opportunity associated with the event against the syndicate's risk register and risk appetite. "This information will be of particular importance in assessing the viability of a syndicate's business," Lloyd's said.
Part of the immediate response by managing agents should include a review of whether their internal models would need changing.
Lloyd's expects members to plan on providing tier 1 capital to replenish solvency deficits, or converting existing tier 2 assets, although the Corporation said it was looking at ways to accept tier 2 capital.