Syndicate results 2018 #38 Catlin 2088

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.

Syndicate 2088 (Active underwriter J. Sutcliffe) was established in 2012 and capitalised by China Re Group as an SPS, quota share, reinsuring Catlin Syndicate 2003.

The syndicate received approval to write business on a stand-alone basis at Lloyd’s for the 2015 underwriting year. It initially focused on building its short tail reinsurance capabilities by establishing both North American and International Property Treaty accounts and a Marine Specialty Reinsurance account.

In 2017 it expanded into the international casualty insurance market, offering Professional Indemnity, Medical Malpractice, Directors’ and Officers’ Liability and General Liability. In addition the syndicate employed specialist underwriters to develop Personal Accident and Renewable Energy portfolios.

The Syndicate continued the expansion of its open market business portfolio, particularly in the Casualty and Chinese Quota Share books of business.

The syndicate continued to underwrite a whole account quota share reinsurance of the entities that formerly made up XL Group (now AXA XL following the acquisition of XL Group by AXA in September 2018). In 2018 the cession of AXA XL represented 1.1% of gross premiums written by AXA XL (2017: 1.2%). This cession, along with the previous whole account quota share contracts with XL Catlin Syndicate 2003 and the Companies within the AXA XL are hereafter referred to as the Whole Account Quota Shares. These operate on a funds withheld basis.

All of the capital supporting the syndicate is provided by a single corporate member, China Re (UK) Limited, a subsidiary of China Reinsurance (Group) Corporation.

The syndicate will cease to write a cession of AXA XL for the 2019 year of account. On December 31st 2018, China Reinsurance (Group) Corporation (China Re) completed its 100% equity acquisition of Chaucer Holdings Ltd from The Hanover Insurance Group, Inc.

Following acquisition, it was confirmed that responsibility for the management of Syndicate 2088 would pass from Catlin Underwriting Agencies Limited to Chaucer Syndicates Limited.

The novation of the managing agency agreement was expected to complete by March 31st 2019.

On September 12th 2018 XL Group Ltd completed its previously announced merger with Camelot Holdings Ltd (Merger Sub), a wholly owned subsidiary of AXA SA. Pursuant to the Agreement and Plan of Merger, dated March 5th 2018, by and among XL Group Ltd, Merger Sub and AXA SA, and the statutory merger agreement required in accordance with the Bermuda Companies Act 1981, by and among XL Group Ltd, Merger Sub and AXA, dated September 12th 2018, Merger Sub merged with and into XL Group, with the latter continuing as the surviving corporation and as a wholly-owned subsidiary of AXA SA.

As a result of the merger, a new division, AXA XL was formed comprising the legacy XL companies and certain existing AXA companies. This new division AXA XL is the P&C and specialty division of AXA, comprising global insurance and reinsurance companies that provide property, casualty and specialty products to industrial, commercial and professional firms, insurance companies and other enterprises on a worldwide basis. For the 2019 underwriting year, the syndicate will continue to purchase Whole Account Stop Loss reinsurance with China Reinsurance (Group) Corporation.

Result for 2018

The result for the year was a loss of £26.4m (2017: loss of £29.7m), primarily attributable to the underwriting loss for 2018 of £28.6m, which was offset by other income of £1.6m and gains on foreign exchange of £0.6m

The equivalent numbers for 2017 were an underwriting loss of £33.1m, other income of £2.3m and gains on foreign exchange of £1.1m.

Other income represents bank interest, return on the syndicate’s investments and interest generated on funds withheld balances on the Whole Account Quota Shares.

The Syndicate said that 2018 had “proved to be a challenging year due to a combination of a competitive market environment for most lines of business, limited rate increases for affected lines of the 2017 catastrophe events and a second year of mid-sized catastrophe events hitting the reinsurance portfolio as Japan was hit by Hurricanes Jebi and Trami and a second year of California wildfire losses”.

During the year the Syndicate challenged all underwriters to move from start-up mode and optimize their portfolio’s profitability by improving risk selection, challenging commissions and increasing rates.

“It is always the syndicate’s preference to rehabilitate underperforming business but if this has not been possible these risks have been non-renewed”, the syndicate said.

It noted that there had been a change of momentum in the second half of 2018, coinciding with the Lloyd’s market embracing the Decile 10 process. This resulted in syndicates cutting back on capacity and rates starting to increase across the syndicate’s casualty classes and loss-affected reinsurance accounts.

The syndicate has continued to build out China-related opportunities with a portfolio of Chinese Quota Share business, Personal Accident for China based pilots and building a Renewable Energy Consortium for Chinese Offshore risks. “We continue to buy a full suite of outwards reinsurance to protect the syndicate’s capital position”, the syndicate said.

Key performance indicators

£000s20182017
Gross premiums written188,803155,212
Underwriting result(28,551)(33,135)
Loss for the financial year(26,377)(29,667)
Net loss ratio78%89%
Combined ratio119%131%

During the year, the syndicate wrote £188.8m in gross premiums (2017: £155.2m). The increase was primarily due to the development of the syndicate’s own independent book of business, particularly in the Casualty and Chinese Treaty portfolios.

The syndicate incurred a net loss ratio of 78.4% (2016: 89.4%). The decrease in the loss ratio was primarily due to the lower severity of 2018 catastrophe events when compared with 2017.

The net operating expense ratio of 40.5% (2017: 41.5%) included commission and administration expenses. The decrease was primarily driven by a lower administration expense ratio which is a result of significant fixed costs forming a lower proportion of the overall expense base when compared with the prior period.

 

2018 £000’sGross Premiums WrittenGross Premiums EarnedGross Claims IncurredGross Operating ExpensesReinsurance BalanceTotal
Direct MAT 24,11825,199(16,217)(8,998)(1,689)(1,705)
Total188,803167,018(137,103)(61,040)2,574(28,551)

 

2017 £000’sGross Premiums WrittenGross Premiums EarnedGross Claims IncurredGross Operating ExpensesReinsurance BalanceTotal
Direct MAT24,78226,742(24,078)(8,952)(982)(7,270)
Total155,212125,060(112,110)(44,462)(1,623)(33,135)

https://www.lloyds.com/investor-relations/financial-performance/syndicate-reports-and-accounts/2013/2088