Underwriting Discipline Wanes as Lloyd’s Market Softens, Apollo Deputy CUO Warns

Apollo’s Deputy CUO Lays Out the Underwriting Traps in a Falling Rate Cycle

When the Lloyd’s market moved deeper into a softening rate environment across major lines, Apollo Underwriting’s deputy chief underwriting officer Carl Day cautioned that underwriting discipline is not a fixed rulebook—it is a mindset that faces its hardest test precisely when conditions become easier. Speaking as renewal rate declines gathered speed, he explained that discipline begins with a thorough understanding of each risk’s margin, the pricing environment, terms and conditions, and the true product on offer. That foundation tells an underwriter what concessions can be made and when.

Day warned that blanket management rules can backfire silently. He has seen firms demand approval for any rate reduction, or for any reduction beyond a set percentage. Such rigid fences, he said, can push underwriters to select against themselves: high-quality business with an excellent track record may legitimately attract a reduction, while the worst business might not. The result is a portfolio that quietly drifts in the wrong direction.

The psychology of a softening market adds another layer of difficulty. Underwriters who have become accustomed to years of rate rises often resist the first few reductions, even though those early cuts typically happen when price adequacy is at its highest. Later, as negative rate changes become routine, the same underwriters grow increasingly comfortable accepting much larger reductions—at a point when adequacy has already been eroded. Data shows the pattern is no longer theoretical. Lloyd’s has flagged rapid softening in casualty and cyber, while Beazley and Hiscox both reported renewal rates down 4%, with Hiscox seeing double-digit declines across major property and commercial lines.

The Structural and Psychological Pressures Behind Market Softening

Psychology and the Cycle Trap

The underwriter’s journey through a softening market follows a predictable but dangerous arc. Early in the downturn, when margins are still relatively healthy, there is often an instinct to reject good business simply because the price is slightly lower. As the market continues to fall, negative rate changes become the new normal and the discipline that once guarded the book can fade, allowing ever-larger reductions at the point of lowest adequacy. Day describes this as a trap that turns a temporary pricing blip into a full-blown portfolio erosion.

Four Areas Where Discipline Falters

The greatest pressure to compromise emerges in four distinct spots. New business, Day notes, is frequently “someone’s lost business or declined business” rather than a genuinely fresh opportunity, tempting underwriters to apply looser standards than they would to a renewal. Delegated authority poses a similar risk: when premium income dips, the prospect of filling the gap with a single delegated arrangement becomes extremely attractive—but only makes sense if the delegated underwriter has a proven track record, pricing is adequate, acquisition costs are transparent, and the business is truly accretive. New product launches become a warning sign when a firm cannot find income from the products it already understands and begins designing new ones purely to plug a premium shortfall. Finally, adjustments to terms and conditions that are not properly priced, or are deliberately overlooked, can erode discipline just as thoroughly as chasing new business.

Why Competitors’ ‘Uneconomic’ Pricing Isn’t Always Irrational

Day cautions against dismissing a rival’s apparently uneconomic terms as simple irrationality. Different firms operate with different agendas—a new entrant absorbing start-up costs, a competitor with a different legacy claims profile or reinsurance structure. Understanding that positioning, rather than branding it as reckless, allows an underwriter to respond with insight instead of emotion.

The Data Already Show Stress

The numbers underline the urgency. Lloyd’s posted an overall pre-tax profit of £10.59 billion in 2025 and a combined ratio of 87.6%, yet its casualty combined ratio deteriorated from 91.6% to 100.8% in the same period, according to S&P Global’s analysis of the Lloyd’s annual report. That casualty swing, alongside the reported rate declines at Hiscox and Beazley, signals that the soft cycle is not merely a pricing discussion but a profitability one.

Modelling Blind Spots

Two assumptions that often derail underwriters in a softening market are that history reliably predicts the future and that “this time it’s different.” Day points out that modelling built on past events does not fully account for today’s global interconnectivity and the speed of transactions, while claims that a cycle will somehow defy the basic mechanics of supply and demand rarely hold up.

What Disciplined Underwriters Should Do Now

• Abandon rigid percentage-approval rules that force underwriters into adverse selection—high-quality business with a small rate reduction is often worth more than bad business at list price.
• Scrutinise delegated authority deals by insisting on a proven track record, transparent acquisition costs, and evidence that the business is accretive rather than a premium gap-filler.
• Resist the temptation to launch new products solely to replace fading premium income; new product development should be demand-driven, not deficiency-driven.
• When making terms-and-conditions adjustments, price the coverage impact explicitly—never overlook it in the scramble to maintain volume.
• Early in a softening phase, do not automatically decline good business with modest rate reductions; those early cuts often occur when margin is still comfortable.
• Later in the cycle, when negative rate changes have become routine, hold a hard line against larger reductions that eat into a deteriorating base of adequacy.
• Invest in client relationships so that a well-explained pricing decision—even a decline—can add value over time and preserve the book when the market turns.