Syndicate results 2018 #39 Argenta 2121

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 2121 (Active Underwriter Syndicates 2121 and 6134 Ian M Maguire) writes a portfolio of both insurance and reinsurance business across a broad selection of marine and non-marine classes. A significant element of the account retains a direct and short tail focus, but some long tail business is also underwritten.

The portfolio underwritten includes:

  • property (including terrorism, UK commercial combined and transportation); energy (offshore, utilities, renewables and liability);
  • marine (hull and war, liability and cargo and specie);
  • specialty (casualty, cyber, warranty and indemnity and accident and health);
  • worldwide treaty; and political risks.

The largest book of business continues to be the direct and facultative property book.

The marine book consists of the traditional classes including hull, cargo, specie, war, fine art and marine and energy liabilities, both in conjunction with physical damage lines and on a standalone basis. The syndicate has a small worldwide treaty account split between catastrophe excess of loss and risk excess business.

For the 2018 year of account, the stamp capacity was increased to £340m in line with the ASML strategic objective to grow Syndicate 2121 by adding new lines of business or aligned distribution sources that can deliver profit in a competitive market. This strategy was expected to continue, subject to market conditions and either the recruitment of high quality underwriters with a proven track record, or through the support of market consortia which have lead expertise.

On an annual accounting basis, the result of the syndicate for calendar year 2018 was a loss of £37.9m (combined ratio 114.9%) with the 2016, 2017 and 2018 underwriting years producing losses of £6.0m, £1.1m and £30.8m respectively. On the traditional Lloyd’s basis of reporting, the 2016 year of account has closed with a loss of £961,000 (0.36% of capacity), with a pure year loss of 0.63% and a release from the 2015 and prior years of 0.27%.

£m20182017
Capacity (underwriting year)340300
Premiums written gross of commission398346
Net premiums earned272246
(Loss)/profit for the year(38)14
Claims ratio (net)71%51%
Combined ratio115%96%

The syndicate said that, across the portfolio as a whole, the difficult trading conditions experienced during 2017 persisted into 2018. Overcapacity continued to hold rates at low levels during the first half of the year, with the only areas of improvement being loss affected classes and territories that suffered most from the record catastrophe losses experienced in 2017.

The large losses impacting the second half of 2018 served to further strengthen rates in some classes.

The 2018 calendar year witnessed a high level of losses between September and the year end, with Hurricanes Michael and Florence, wildfires in California, Typhoon Jebi and the Lurssen shipyard loss, all combining to make it the fourth most expensive year on record for insurance losses.

The largest natural catastrophe loss incurred by the syndicate was in respect of Typhoon Jebi, with the largest incurred man-made loss being the Lurssen shipyard fire. Both of these losses occurred in September 2018 and both will impact the syndicate’s reinsurance programme.

The losses from Hurricanes Michael and Florence, the Hawaiian volcanoes and the Californian wildfires fell within the syndicate’s reinsurance retentions for the relevant classes.

The losses incurred were insufficiently large in the aggregate to trigger recoveries from the catastrophe aggregate deals purchased by the syndicate. The six losses mentioned were likely to contribute $44m (including outwards reinstatements) of net loss to the syndicate across various years of account. This compares to a net loss (including outwards reinstatements) from Hurricanes Harvey, Irma and Maria and Cyclone Debbie in 2017 of only $20.4m, despite the gross losses incurred during 2017 being 63% greater than 2018. The syndicate said that this was a direct result of the increased number of losses falling “just below the retentions on the 2018 reinsurance programmes”.

The syndicate said that, although the 2017 and 2018 major loss events had an impact on market results, they had not materially affected the level of available capital within the market. “Any capital that has been depleted or trapped appears to have been replenished.”

This meant that “there would still appear to be excess capital in the (re)insurance sector and supply continues to outstrip demand. Unless this situation changes or the dynamics within financial markets more generally alter, it is unlikely that the market will materially harden in the short term”, the syndicate warned.

That said, the syndicate noted that, post the 2017 and 2018 loss events, it had been encouraging to see that most of the classes in which the syndicate operated were seeing some rating improvements.

The Syndicate observed that there had been “a dramatic increase in the proliferation of market facilities in recent years which have had an impact on the way certain business is transacted. Increasingly concerns have been expressed about the implications of such market facilities and the potential conflicts of interest that arise. The decision taken by the syndicate in previous years not to support these types of facilities is proving to be correct as they become increasingly impacted by the Lloyd’s business planning process.”

The overall rate increases on business that was renewed in 2018 was 3.0% compared to an expected increase of 3.7% for the syndicate as a whole.

The syndicate said that, reserves in respect of the 2015 and prior years of account continued to develop satisfactorily, generating a surplus of £0.7m during the 2018 calendar year. Following the ruling in favour of insurers in respect of the last remaining dispute in a sprawling litigation over liability from the deadly attacks on the World Trade Centre in September 2001, further releases were made from the reserves held to cover this event.

However, Syndicate 2121 was one of those impacted by the fire on a yacht nearing completion in the Lurssen shipyard in Germany, which will hit back years. The syndicate observed that “this was close to the end of a five year build with full values exposed”.

As a result of all of the above, the 2016 and prior years of account produced a loss of 0.36% of stamp capacity.

There had been little movement in the syndicate’s net position on 2017 year of account from events in 2017. The 2018 losses from the California wildfires, the Hawaiian volcanic eruptions, Hurricane Michael and, to a lesser extent, Hurricane Florence, also impacted the 2017 year of account. The largest non-catastrophe losses impacting the 2017 account were a fire in the cargo hold of the Maersk Honam in the marine account, a major fire in a property under construction in Oakland and losses emanating from the main market casualty consortium. The syndicate said that, overall, the 2017 forecast result was developing behind the business plan target, but it was hoped that the work on managing the level of attrition would reap dividends over the next 12 months and that the result would be better than the market as a whole.

The largest losses to impact 2018 so far were the catastrophe losses referred to above, losses emanating from the syndicate’s involvement in the main market casualty consortium and losses from fires at a Macy’s warehouse in the US and in a Brazilian warehouse. Both of those losses emanated from the cargo account.

Overall the 2018 forecast result was developing behind the business plan target and the syndicate admitted that it might prove to be a struggle to produce a positive return. There was also a significant element of 2018 business still exposed throughout a large part of 2019. It was hoped that this would develop favourably over the next 24 months.

The overcapacity that was still evident throughout the market, despite the major losses in 2017 and 2018, meant that, whilst rate expectations for 2019 were predicted to continue to be positive, a conservative stance was being taken by the syndicate when it comes to planning.

The January 1st 2019 renewal season was much better than anticipated, helped by the challenges from Lloyd’s in the 2019 business planning process on the market as a whole in relation to classes of business written, line sizes and the reliance on market facilities.

In 2018 ASML established a Special Purpose Arrangement, Syndicate 6134, to be managed alongside Syndicate 2121. Syndicate 6134, sponsored and capitalised by the Hannover Re group, underwrites quota share reinsurances of business written by Syndicate 2121 as the host syndicate. Syndicate 2121 will retain at least 10% of the business introduced by the sponsor. Syndicate 6134 underwrote gross net written premium in 2018 of £19.5m across specific classes of business within the underwriting capability of the host syndicate. For the 2019 year of account the expectation was that Syndicate 6134 would underwrite £29.8m of gross net premium and that this would increase further over time. Syndicate 2121 receives an overriding commission in respect of these arrangements. The quota share contracts are being underwritten on a funds withheld basis although amounts may be advanced if needed to enable Syndicate 6134 to finance its standalone obligations.

 

2018 £000Gross premiums writtenGross premiums earned Gross claims incurredGross operating expenses* Reinsurance balanceTotal
Direct MAT40,85635,599(44,344)(12,579)4,908(16,416)
Energy24,22123,515(19,135)(6,928)3,192644
Total Direct327,760288,777(196,764)(100,320)(29,533)(37,840)
Reinsurance acceptances MAT21,84922,074(11,377)(7,031)(6,015)(2,349)
Energy7,8758,128(1,431)(2,677)(1,684)2,336
Total reinsurance acceptances70,15871,843(39,904)(22,601)(9,988)(650)
Total397,918360,620(236,668)(122,921)(39,521)(38,490)

 

2017 £000Gross premiums writtenGross premiums earned Gross claims incurredGross operating expenses* Reinsurance balanceTotal
Direct MAT28,89225,958(18,637)(10,609)(4,472)(7,760)
Energy24,67725,246(1,975)(8,774)(4,067)10,430
Total Direct275,899246,152(171,234)(87,454)21,8789,342
Reinsurance acceptances:MAT22,93523,611(23,981)(8,023)5,475(2,918)
Energy8,7808,123(875)(3,019)(20)4,209
Total reinsurance acceptances70,12167,905(47,975)(21,763)3,6881,855
Total346,020314,057(219,209)(109,217)25,56611,197

A deterioration of £4.1m on prior years’ provisions was experienced during the year. £2.0m on third party liability, £2.8m on MAT and £3.4m on fire and other damage to property, partially offset by improvements of £2.2m on energy and £1.8m on reinsurance acceptances.

For there was an overall improvement of £16.9m on prior years’ provisions (£4.9m on fire and other damage to property, £3.8m on MAT, £2.7m on energy, £2.8m on reinsurance acceptances and £2.5m on third party liability.)

https://www.lloyds.com/investor-relations/financial-performance/syndicate-reports-and-accounts/2006/06/2121