•Clarity on potential losses to be accounted for in underwriting and business planning decisions (relates to Natural catastrophe risk); and
•The ORSA process, to ensure climate change related risks are considered across relevant areas of the business (relevant to all risks).
ii.Geopolitical uncertainty and the global economic environment
Geopolitical uncertainties driven by factors such as US trade policy and the ongoing war in Ukraine have the potential to cause insurance losses for the Syndicate and disruption to financial markets which could impact the Syndicate’s investments.
These factors give rise to recessionary and inflationary risks, which may impact the frequency and cost of claims, investment results, the likelihood of counterparty defaults and the potential for operational risk events. Brit continues to actively monitor and respond to changes in the economic environment.
Brit has considered the impact of increased levels of inflation and an economic downturn. Brit continues to ensure that its pricing models adequately address current inflationary trends. Feeding into these models is an enhanced framework assessing the key drivers of claim settlement costs for each class of business. Inflationary impacts are also considered during the reserving process. Additionally, the investment portfolio is appropriately positioned amid the uncertainty with investment grade assets in excess of insurance liabilities, strong credit quality in the bond portfolio and the duration position materially consistent with the solvency matched position (immunising the solvency position against parallel movements in interest rates).
iii.Cyber risk
The cyber risk landscape continues to develop with cloud outages, increasingly sophisticated attack techniques such as ransomware as a service, increasing interconnectivity (such as networked critical infrastructure and cloud data storage), and the advancement of generative artificial intelligence (AI).
Brit has invested significantly in developing our understanding of cyber underwriting risk, including the potential drivers of aggregate loss events. Third-party vendor tools have been licensed, providing enhanced threat intelligence and data. The ongoing development of the cyber exposure management approach remains an area of focus given the evolving threat environment.
Similarly, Brit has invested significantly in our own cybersecurity. An annual risk-based evaluation is conducted to ensure Brit retains the capability to detect security vulnerabilities and safeguard our systems.
E.Capital Management
i.Capital framework at Lloyd’s
The Society of Lloyd’s (Lloyd’s) is a regulated undertaking and subject to supervision by the Prudential Regulatory Authority (PRA) under the Financial Services and Markets Act 2000, and in accordance with the Solvency UK Framework.
Within this supervisory framework, Lloyd’s applies capital requirements at member level and centrally to ensure that Lloyd’s complies with the Solvency UK requirements, and beyond that to meet its own financial strength, licence and ratings objectives.
Although, as described below, Lloyd’s capital setting processes use a capital requirement set at syndicate level as a starting point, the requirement to meet Solvency UK and Lloyd’s capital requirements apply at overall and member level respectively, not at syndicate level. Accordingly, the capital requirement in respect of Syndicate 2987 is not disclosed in these financial statements.
ii.Lloyd’s capital setting process
In order to meet Lloyd’s requirements, each Syndicate is required to calculate its Solvency Capital Requirement (SCR) for the prospective underwriting year. This amount must be sufficient to cover a 1 in 200 year loss, reflecting uncertainty in the ultimate run-off of underwriting liabilities (SCR ‘to ultimate’).
