By Henry Gale

April 9 - (The Insurer) - After Ki Syndicate 1618 recorded its lowest expense ratio to date at 27.6%, The Insurer examines whether smart follow business models are bringing down expenses for Lloyd's insurers.

Alongside faster quoting times, cost efficiencies have been a key selling point for smart follow underwriting in the Lloyd's market, which suffers from high expenses compared to U.S. carriers.

Smart follow involves involves insurers writing follow business without human involvement in individual risk decisions. Algorithmic players such as Ki use machine learning models to judge pricing for open-market risks automatically, while "tracker" or portfolio underwriters follow specific leads in particular lines of business more systematically.

These approaches have often been taken through dedicated syndicates, providing a degree of transparency on their performance. In 2024, these syndicates wrote more than $1.8 billion in gross written premiums. However, managing agents are increasingly deploying smart follow techniques within existing vehicles too.

Beazley Smart Tracker Syndicate 5623, the first of the current generation of smart followers, achieved expense ratios of 25% in 2020 and 2021, outperforming the Lloyd's market as a whole by around 10 percentage points each year.

Syndicate 5623's expense ratios have since increased, which its recent annual reports have attributed to operational expenses associated with the syndicate's growth (it wrote three times more premium in 2024 than 2021) and commissions to its managing agent as it became more profitable.

Ki Syndicate 1618, the only syndicate dedicated to algorithmic smart follow, recorded higher expense ratios at its outset due to upfront technology costs. Its expense ratio in its first year was still below 40%, lower than several other Lloyd's startups. Ki's expense ratio has decreased every year since and hit a new low at 27.6% in 2024, placing it among the 15% of Lloyd's syndicates with the lowest expense ratio.

After launching in 2023, Acrisure's Flux Syndicate 1985 reduced its expense ratio by more than 8 points to 34.4% in 2024, the same as the Lloyd's market as a whole. Nephila Syndicate 2358's expense ratio remained above the overall Lloyd's market, but below the median syndicate. Hampden Risk Partners' follow-only Syndicate 2689 just missed out on being in the lower half of Lloyd's syndicates by expense ratio.

With the extent of smart follow underwriting in other syndicates not disclosed, it is not possible to attribute changes in their expense ratio to smart follow business models. However, QBE Syndicate 2999's annual report for 2024 attributed its 23% growth in gross premiums partly to increased underwriting through its "portfolio solutions" smart follow initiative. It also recorded a drop in its expense ratio of 1.8 points on 2023, excluding the impact of the syndicate's recent reserve transfers.

While not every smart follow initiative is achieving significantly lower expense ratios than the rest of the market right now, Ki's 2024 results show it is possible to underwrite specialty follow risks profitably at lower expenses. If the growth of smart follow picks up, it could be only a matter of time before Lloyd's stubborn expense ratios start to shift.