Syndicate results 2018 #24 Standard Syndicate 1884

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.

Standard Syndicate, which was launched on April 1st  2015, writing primarily marine classes, went into run-off at the start of this year. R D Andrews is Run-off Manager.

That decision was taken by CTMA In October 2018 following a protracted challenge to obtaining approval for the proposed 2019 business plan and consequent withdrawal of support by the major capital provider” (i.e, Standard Club).

The entry of the Syndicate into run-off had a negative impact on the 2018 year of account result due to a shortfall in income compared with already committed administration and reinsurance costs. In addition, the Syndicate’s forecast ultimate results across all years of account were negatively affected by an estimated £27.1m. This was primarily due to:

  • recognition of future run-off costs and additional reinsurance costs, and
  • lower than originally anticipated gross premium exposure leading to reductions in anticipated reinsurance recoveries and expected underwriting profit.

The CTMA Board approved closure of the 2016 and prior year of account. It issued a cash call statement requesting 10.0% of capacity on the 2017 and 2018 years of account respectively. CTMA said that these actions would “provide finality to investors on the 2016 year and establish sufficient liquidity to manage the run-off of the account until the anticipated closure of the Syndicate’s remaining open years at the end of 2019 and 2020”.

The transition of the Syndicate into run-off, including a restructuring of the Syndicate’s operations to reduce headcount and on-going administration costs, was been executed successfully.

201620172018
Forecast to Ultimate£m£m£m
Gross premium written79.8104.6102.6
Earned premium, net of reinsurance66.378.379.7
Run-off provision*(5.2)(7.0)(14.9)
Result on the technical account for the year of account(36.0)(47.7)(31.4)
Claims ratio98.1%101.6%78.3%
Acquisition ratio30.1%32.8%31.1%
Expense ratio26.1%26.5%30.0%
Combined ratio154.3%160.9%139.4%

*Costs that would otherwise have been borne by future years of account, or as a direct result of going into run-off.

2016 and prior year of account:

The Syndicate wrote gross premiums of £79.8m and gross net premiums of £60.8m. The year will close with a loss of £36.6m (40.7% of capacity). The key drivers of this result were:

  • net technical result, loss of £18.6m includes an additional technical provision of £2.5m in respect of anticipated run-off costs for a future third-party RITC transaction
  • Hull, Cargo and D&O/E&O classes contributed £18.3m loss on the technical result
  • Property non-marine and Liability classes contributed £2.1m of profit on the technical result
  • Operating costs of £18.2m include £2.9m of Lloyd’s personal expenses and £2.0m of additional expenses directly as a result of the Syndicate going into run-off.

2017 year of account:

The Syndicate wrote gross premiums of £104.6m and gross net premiums of £79.7m. The year is forecast to return a loss of £47.3m (47.3% loss on capacity). The overall ultimate gross and net loss ratios are 135% and 149% respectively; excluding losses from hurricanes Harvey, Irma, Maria and Mexican Earthquake (HIMM), these are 100% and 120% respectively. The key drivers behind this result were:

  • net technical result, loss of £26.1m
  • Hull, Cargo, Property non-marine and Property marine classes contributed £32.9m loss on the technical result
  • Political risk, Liability, Energy and D&O/E&O classes contributed £6.6m of profit on the technical result
  • Operating costs of £21.7m include £3.5m of Lloyd’s personal expenses and £4.5m of additional expenses directly as a result of the Syndicate going into run-off.

2018 year of account:

The Syndicate wrote gross premiums of £102.6m and gross net premiums of £78.7m. The year of account is forecast to return a loss of £31.9m (31.9% loss on capacity). The overall ultimate gross and net loss ratios are 90% and 112% respectively. The key drivers behind this result are:

  • Net technical result, loss of £6.7m
  • Hull, Cargo and Non-marine property classes contributed £13.2m loss on the technical result
  • Marine property, Political risk, Specie, Liability and Cyber classes contributed £6.1m of profit on the technical result
  • Operating costs of £24.7m include £2.7m of Lloyd’s personal expenses and £6.7m of additional expenses in respect of the Syndicate going into run-off.

Substantial work took place to re-underwrite and remediate the underperforming hull and cargo classes of business through 2017 and 2018, including a significant reduction in exposure. However, the syndicate said that the account remained subject to continuing volatility from unexpired risk and potential adverse reserve development.

The Syndicate will have material levels of unexpired risk until Q3 2019, with the run-off profile reducing rapidly after this date. Management said that it would continue to focus on control of costs, considering the run-off expense provisions established at 31 December 2018.

The Syndicate will seek out and take opportunities to de-risk its portfolio of underwriting risks if commercially advantageous. Such actions include purchase of additional reinsurance or seeking to be replaced on risks with long expiry dates. Opportunities to de-risk the portfolio will be pursued if they allow the realization of anticipated profits on unexpired risk, manage volatility on the account in the period to December 2020, or where they are expected to reduce ultimate third-party reinsurance to close costs.

The Syndicate will seek to close remaining open years into the succeeding year in the normal course of business (i.e. after 3 years). It will, however, pursue potential early finality opportunities if these are considered advantageous to capital providers. The 2016 and prior year of account reinsurance to close premium includes recognition of the additional cost that will be borne by the final open 2018 year of account capital providers. This recognition has been made in order to preserve equity between the different capital providers on each year of account. It is anticipated that a similar consideration of equity between years will be applied to ensure an appropriate reinsurance to close premium in the event that the 2017 and prior years of account is closed into 2018 year of account.

£0002018 2017
Gross premium written104,17689,302
Earned premium, net of reinsurance89,36865,472
Loss on the technical account for the period(53,029)(37,010)
Claims ratio103.9%99.8%
Acquisition ratio31.2%30.2%
Expense ratio24.5%26.5%
Combined ratio159.6%156.5%

The ratios are to earned premium, net of reinsurance.

Segmental analysis

For the year ended 31 December 2018 (£000)Gross written premiumGross earned premiumGross claims incurredGross operating expensesReinsurance balanceTotal
Direct insurance:      
Marine, aviation and transport38,21943,458(40,682)(19,596)(10,810)(27,630)
Fire and other damage to property30,83030,378(18,129)(13,651)(9,071)(10,473)
Third-party liability6,0764,134(1,169)(1,698)(956)311
Pecuniary loss8,9168,265(5,522)(3,515)(551)(1,323)
Total Direct84,04186,235(65,502)(38,460)(21,388)(39,115)
Reinsurance20,13524,349(18,111)(11,323)(9,037)(14,122)
Total104,176110,584(83,613)(49,783)(30,425)(53,237)

 

For the period ended 31 December 2017 (£000)Gross written premiumGross earned premiumGross claims incurredGross operating expensesReinsurance balanceTotal
Direct insurance:
Marine, aviation and transport41,36344,219(51,929)(19,610)8,977(18,343)
Fire and other damage to property13,1149,079(28,337)(4,474)14,530(9,202)
Third-party liability1,006 5861,164(298)(3,448)(1,996)
Pecuniary loss10,8164,516(4,123)(2,922)(358)(2,887)
Total Direct66,29958,400(83,225)(27,304)19,701(32,428)
Reinsurance23,00323,767(24,269)(9,850)5,739(4,613)
Total89,30282,167(107,494)(37,154)25,440(37,041)

https://www.lloyds.com/investor-relations/financial-performance/syndicate-reports-and-accounts/2016/1884