Gallagher’s pre-renewal review 2020 – Financial year underwriting

Broker Gallagher has released its 2020 pre-renewal report, summarizing the International Group Clubs’ performances in detail, for full years up to 2019-20 and for the part of 2020-21 that has already taken place.

The following table summarizes the financial year underwriting result of each Club over the past five years.

Year 2019-20 2018-19 2017-18 2016-17 2015-16 Cumulative
American -6,314 -12,305 -2,407 -8,916 -1,966 -31,908
Britannia * inc Boudicca  -53,675 -21,516 7,146 45,848 -2,331 -24.528
Gard * -85,812 -101,000 -24,282 28,218 112,669 -70,207
Japan * -7,191 6,907 14,153 23,949 17,165 54.983
London -36.100 -33,674 -15,222 1,696 15,319 -67,981
North of England * -84,293 -16,443 -12,644 -19,150 100,264 -32.266
Shipowners -10,273 -8,197 1,761 2,802 3,247 -10,660
Skuld * -35,218 8,036 1,972 9,226 22,070 6.086
Standard * -109,700 -49,500 -24,500 17,500 17,700 -148,500
Steamship * 3,741 -31,842 -38,710 41,935 76,172 51,296
Swedish * -8.079 -5,810 -11,056 5,508 184 -19,523
United Kingdom * -50,779 -37,057 49,156 -22,126 17,820 -42,986
West of England -13,153 -26,026 -28,234 23,217 30,149 -14,047
Aggregate -496,846 -328,427 -82,867 149,707 408,462 -349,971

Clubs with * under called in one or more of the years in question. Results incorporate the effect of pension fund adjustments necessary in a number of Clubs, applied retroactively where appropriate.

Gallagher observed that, with increased diversification any analysis of the components of the financial year underwriting result became increasingly complex.

It said that the biggest intangible was the result attributable to closed year policy years development, which remain influential with regard to the ultimate financial year result. “Inferentially this was a substantial positive contribution for 201920 of perhaps $175m”, said Gallagher.

Gallagher observed that just one of the 13 Clubs achieved an underwriting surplus on a financial year basis in 2019‑20 (Steamship Mutual), while two had done so the previous year.

Only three Clubs have achieved an aggregate positive result over the past five years (Steamship, Japan and Skuld). On an ETC basis, Gard would have returned an underwriting profit.

Gallagher observed that, for every 2019-20 (awful) there was a 2015-16 (very good).”A look at those two years shows a $900m swing on underwriting result, and, on an ETC basis the swing approaches $1bn.”

Gallagher said that, as much as the 2015-16 result justified a period of nil increase, then the 2019-20 pointed to a sustained period of increases to regain balance.

Gallagher said that American Club remained the only one of the 13 Clubs to have consistently sustained underwriting losses in each the last five years. However, several of the other Clubs were dependent on the excellent 2015-16 result to help their five-year average, including Skuld and West of England.

Gallagher said that North of England Club presented “an unusual example of the extremes of performance, having seen underwriting results between +$100m in 2015-16 to minus $84m in 2019-2020, with no particular influence from call deviations.

Gard also presented an anomaly, having sustained a $86m underwriting loss in 2019-20, in contrast to a $112.7m surplus four years earlier. The current year result was impacted by the decision, “albeit one that will be reviewed in November, to waive the final instalment of the 2019-20 ETC at a “cost” of $72m”, said Gallagher.

Standard Club results continued to be heavily influenced by the result attributable to syndicate 1884, which withdrew from Lloyd’s from 2019 and was placed into runoff. This impacted Standard’s 2018-19 results and it again suffered a loss in 2019-20 before it sold the syndicate, and its run off, thus monetizing its liabilities.

Gallagher estimated that across its period of membership of Lloyd’s that Standard Club sustained about $100m of underwriting technical loss. However, Gallagher also noted that this still left a five-year average loss on other business of perhaps $9m a year. Gallagher said that Standard’s venture into Lloyd’s “reinforces emphatically the risks associated with diversification”.