Syndicate Results 2018 #2: Syndicate 510 – Tokio Marine Kiln

The Lloyd’s syndicates have now published their results and, in some cases, added detail and an outlook for 2019. As last year, IMN is summarizing the results from all syndicates that have a marine interest which have provided some information on the marine side.

2016 (now closed)

Paul Culham, Group Chief Underwriting Officer at Tokio Marine Kiln (TMK) said that Syndicate 510 made an underwriting profit of £46.7m on allocated capacity of £1,061.8m after taking account of operating expenses, Lloyd’s expenses and investment income for the now closed 2016 underwriting year of account.

He said that this was a reasonable result given the number of catastrophe events that occurred in 2016, including the wildfires in Fort McMurray in Alberta, floods and hailstorms in Texas, and Hurricane Matthew, losses that primarily affected the Property & Special Lines division.

Marine & Special Risks suffered several large losses, the most notable of which was on the energy account relating to a business interruption loss on the Jubilee oil field off Ghana.

The 2016 underwriting year result was significantly improved by the back years’ release of £54.6m, the result of favourable claims development on prior years, which was seen across most of the book.

2018

Under UK GAAP the syndicate produced a loss of £23.4m against gross premium written of £1,376.7m and net earned premium of £1,015.5m for the 2018 calendar year. 2018 experienced a number of significant catastrophe events (including hurricanes Florence and Michael and two major wildfires in California).

“Following an internal underwriting review around the profitability of our traditional marine classes we took action to exit most of these classes as we determined we were unlikely to achieve the desired return”, Culham said.

Gross premiums were down 3% as a result of early action taken to maintain rating levels, which were up 2.8% ovreall on 2017.

Culham said that there had been a continued focus throughout the year on adapting underwriting appetite to market conditions. The combined ratio for the 2018 calendar year was 103.5%. 2018 saw a loss of £9.1m on FX, compared with a £5.3m loss on exchange the previous year.

 

 Property & Special Lines £mMarine & Special Risks £mAccident & Health £mReinsurance £mEnterprise Risk £mAviation £mSyndicate 807 run-off £mSyndicate 510 £m
Underwriting profit/(loss)(13.7)2.16.524.220.37.10.246.7
Allocated capacity546.7184.0118.797.070.045.41,061.8
Allocated capacity %(2.5)1.15.525.029.015.64.4
Prior years’ improvement15.013.71.313.62.38.50.254.6

 

Annual Accounting Result Syndicate 510

2018Marine £mTotal £m
GWP204.11376.7
NEP167.21015.6
Result pre inv return and FX(1.2)(26.5)
Profit(loss)(0.5)(23.4)
Claims ratio %64.161.1
Combined ratio101.5103.5

 

2017Marine £mTotal £m
GWP226.51416.9
NEP197.01081.9
Result pre inv return and FX(5.5)(109.4)
Profit(loss)(3.5)(98.8)
Claims ratio %65.269.2
Combined ratio103.2110.6

 

Culham said that 2018 was the second consecutive year in which there had been “an active claims environment”. Even though the gross aggregate catastrophe claims amount was around two-thirds of the 2017 experience it still had a significant impact on the 2018 annual accounting year result, he said.

Overall income between 2017 and 2018 was largely unchanged. “However we continued to move income from classes where we believe we are unable to derive a satisfactory return to areas where we believe we hold a competitive advantage and consequently we can get an acceptable return”, said Culham. To that end TMK reduced income across Marine, Accident and Health and Liability business, but grew in Property, Enterprise Risks and Special Risks.

Chief Executive Officer Charles Franks said that the past year had been “another tough one for the insurance industry”, adding that “collectively, we saw a second round of natural catastrophes take their toll on people, property and livelihoods around the world”.

The total economic losses from natural and man-made catastrophes in 2018 was by one estimate put at $155bn, down from $350bn in 2017. Insured losses were roughly $77bn in 2018.

Franks said that, against that backdrop, TMK’s losses for 2018 were “fully in line with the modelled scenarios and the expectations we have for these types of events”.

Franks was pleased to report that TMK’s claims team continued to honour all valid claims quickly and empathetically. “They have also been recognized across the London market for service excellence in 2018. The team is now ranked 2nd in the Gracechurch survey of brokers’ preferences (up from 4th place) and achieved a remarkably consistent 1st place in 8 out of 10 service metrics”.

Franks said that TMK took action early in 2018 to re-shape and refocus the business for the future. “This was a necessary step if we were to limit successfully future losses from lines of business that were not likely to return a profit in the near future”, he said, while observing that excess capital in the market was “the new normal”.

While the TMK report was being finalized, Franks said that the rating environment in which it handled the January 1st renewals remained fairly flat, but with some areas such as US Property showing improvements.

However, the failure of the market to harden after the 2017 catastrophes meant that TMK looked hard at its underwriting portfolio. A thorough internal review commenced of the markets TMK was in. “This led us to reduce our presence in some areas of international liability, construction, marine and property lines with the consequent loss of some underwriting teams in the summer, as we drew that part of the review to a close.”

Franks said that Lloyd’s began its own review of the London market in May 2018, with similar aims to those already initiated by TMK. He said that the Lloyd’s Decile 10 review, which ran through to November 2018, fed in to the annual business planning cycle with Lloyd’s – a process which for TMK “was somewhat smoother thanks to the work we had already done to re-align the management of our underwriting strategy”.

As a general rule 2018 saw a small increase in rating levels, with some areas such as open market Property experiencing increases of over 15%. In general all divisions either met or exceeded the rating expectations outlined in the 2018 plan. In some cases, such as the Property division, this was achieved at the expense of losing under-priced business which meant that overall incomes came in below plan.

2019 development

TMK said that it continued to believe that growth in the strategic growth areas of US Property, Cyber, Intellectual Property and other products protecting the intangible asset values of companies would form the core of its growth areas. “We enter 2019 with general market discipline at its strongest for several years. The 2018 catastrophe losses following on from the record 2017 losses are a major catalyst, as is the corrective action overseen by Lloyd’s for the 2019 business planning exercise”, TMK said.

TMK has reduced its commitments in the weaker areas, including Marine Hull and Cargo, Liability, and A&H classes, while increasing in more profitable and successful areas such as US Delegated Property and Cyber business.

TMK is budgeting reduced gross income estimates for 2019 compared to 2018 for Syndicate 510 for the first time in several years. Projected profits however had been raised slightly when compared with the 2018 plan.

2019 PRIs were encouraging at an early stage with further increases obtained above those achieved in 2018. The rate increases had driven by a combination of factors, including the 2018 catastrophe losses and Lloyd’s market-wide actions to restrict syndicates writing under-priced business.

On Brexit, TMK said that through 2018 it had worked hard to revise its internal operating model to link TMK syndicates with the newly-created Lloyd’s Brussels Subsidiary (LBS). TMK said that this had required some complex ‘rewiring’ of some of its business processes.

From January 1st 2019 TMK transitioned to the new trading arrangements for European based risks, with what it described as “minimal business disruption”.

Cover for specialist classes in Continental Europe was now being processed through the new Lloyd’s European Subsidiary in Brussels

https://www.lloyds.com/investor-relations/financial-performance/syndicate-reports-and-accounts/2015/0308 (includes all three syndicates, 308 Life (in run-off), 557 (catastrophe non-marine), and 510 composite)