Syndicate results 2018 #6: Atrium Syndicate 609

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.

Atrium Syndicate 609 reported a profit of £30.0m for calendar year 2018 up from a gain of £11.7m the previous year.

Syndicate 609’s diverse portfolio includes Accident & Health, Aviation, Liability, Marine, Non Marine Direct & Facultative, Property & Casualty Binding Authorities, Reinsurance, Upstream Energy and Terrorism.

2018 £m2017 £m
Gross premiums written503.0467.2
Net earned premiums430.4408.7
Total Comprehensive Income30.011.7
Loss ratio48%52%
Combined ratio93%99%
Investment return6.07.5
Adjusted Economic Capital Assessment (ECA)237.5236.0
Return on adjusted ECA13%5%

(The ECA is determined by comparing the total comprehensive income to the Syndicate’s ECA set by the Corporation of Lloyd’s on agreement of the Syndicate’s Solvency Capital Requirement (‘uSCR’) derived from its Internal Model, including Solvency II balance sheet adjustments.)

Gross premiums written increased 8% year on year. The most significant increases were from the Property & Casualty Binding Authority class where rate increases were achieved post the 2018 California wildfires, the Liability class which had grown in recent years following the arrival of a new underwriting team in 2015, the Marine class where advantage was taken to write more business as other Lloyd’s syndicates have exited this class, and Non Marine Direct & Facultative where advantage was taken of new opportunities that arose post the hurricane losses experienced in 2017.

The loss ratio for the year was 48 % down from 52% in 2017.

The Marine and Reinsurance classes were impacted by a claim on Project Sassi – a fire at a German shipyard destroying a luxury mega-yacht just as it was nearing completion. This contributed 3% to the loss ratio in 2018.

Atrium 609 continued to benefit from favourable reserve development cutting 10% from the loss ratio in 2018 (2017 – 14%). The impact of the catastrophe events during 2017 contributed 16% to the 2017 loss ratio.

Atrium said that Atrium had worked closely with Lloyd’s on the Lloyd’s Brussels Brexit contingency arrangement.

The syndicate said that, while it was “only a small proportion of its overall business”, Syndicate 609 had incorporated the essential changes required by Lloyd’s throughout the organization to be business ready for when Brexit occurred.

Syndicate 609 is underwriting business incepting from 1 January 2019 domiciled or located in the EEA, which includes the 27 EU states plus 3 EEA states, on behalf of Lloyd’s Brussels. Syndicate 609 will underwrite EEA-located business to a new syndicate number – 5310 – with business being 100% reinsured back to Syndicate 609.

For EEA reinsurance business, Atrium said that in the majority of circumstances it should still be able to write this business cross-border from London on Syndicate 609’s paper in the event of a hard Brexit.

Lloyd’s Brussels would be able to underwrite reinsurance business on a facultative and non-proportional basis.

All non-EEA business will be underwritten via Syndicate 609 in the current manner. Lloyd’s plans to transfer all legacy EEA business to Lloyd’s Brussels before the end of 2020, via a Part VII transfer.

Atrium’s Board said that it was confident that Syndicate 609’s future performance should not be materially impacted by Brexit.

2018 (£’000):Gross Premiums WrittenGross Premium EarnedGross Claims IncurredGross Operating ExpensesReinsurance BalanceTotalNet Technical Provisions
Marine, aviation and transport72,81770,71130,36932,6623,45911,139100,285
Reinsurance59,40461,76133,43016,437(3,557)8,337104,448
Total503,029483,498244,331200,255(10,211)28,70827,190

 

2018Gross Premiums WrittenGross Premium EarnedGross Claims IncurredGross Operating ExpensesReinsurance BalanceTotalNet Technical Provisions
Marine, aviation and transport67,29972,17313,28838,097(10,040)10,748103,875
Reinsurance66,02765,87663,28916,1047,392(6125)103,568
Total467,156461,855256,044199,091(3,563)3,157757,311

 

For the closed 2016 YOA the syndicate posted a profit of £53.4m after all personal expenses but before members’ agents’ fees. This represented a 12.8% return on stamp capacity. Favourable run-off of the back years contributed 81% to the result. Two large Energy losses settled at levels below the syndicate’s reserves; as well as general favourable development across most classes.

Project Sassi

The largest claim to impact the 2016 and prior years of account during the 2018 calendar year was the fire at a German shipyard, which completely destroyed a luxury mega-yacht just as it was nearing completion.

The claim on Project Sassi was expected to exceed €600m, which probably would make it the largest marine hull physical damage claim in history.

The direct claim fell back to the 2014 year of account as it was in 2014 that the first steel was cut (i.e. the project commenced).

The Syndicate said that it would be make a substantial collection from its reinsurers on this claim.

The syndicate also now writes an inwards book of Marine Reinsurance, so the loss also impacted the 2018 Year of Account.

There was only one other notable 2016 year of account large risk loss in the past 12 months – Ever Judger, which hit the Marine War reserving class.

Accounts that significantly contributed to the 2016 profit included Non-Marine D&F, Reinsurance, Terrorism and Upstream Energy. Final gross written income (net of acquisition costs) was £319m, equal to 76% of capacity.

The 2017 YOA was dominated by the run of natural catastrophes in the latter half of the year. This time last year the Syndicate estimated that its losses from Hurricanes Harvey, Irma and Maria (HIM), earthquakes in Mexico, and wildfires in California would be $125m gross, with a final net loss estimate of $86m.

Active Underwriter Toby Drysdale, with an admirably comprehensive and illuminating commentary on the state of the market, noted that many insurers and reinsurers had increased their loss estimates over the past 12 months (particularly for Irma), but Drysdale said that he was pleased to report that the reserved losses as of December 31st 2018 had come down fractionally to $123m gross / $83m net.

Notable 2017 year of account large risk losses in the past 12 months included Horizon Air & Alpha Star (both Aviation Hull War losses); Thomas Foods (Non Marine Property); and Viasat (Space).

Final gross written income (net of acquisition costs) was expected to be £356m which is 85% of capacity. At this stage the Syndicate was forecasting a small loss for the 2017 Year of Account, with a range of minus 7.5% to +2.5%.

The 2018 YOA was impacted by the Project Sassi loss through the Marine Reinsurance account the direct side will impact earlier years: see above). Other notable risk losses to date included Arcelor Mittal (Non Marine Property) and a possible claim arising from the capsize of a Lift Boat (Marine Hull).

2018 was also another active year for Natural Catastrophes. Hurricanes Florence and Michael, Typhoons Jebi, Trami and Mangkhut would cause the syndicate “relatively modest” losses, with Hurricane Michael likely to be the largest of these. More meaningful claims were anticipated for the syndicate from the Camp and Woolsey fires in California at the end of 2018. The two fires were currently reserved at a combined $21.6m.

2017 had been the costliest year on record for wildfires, until 2018 surpassed it. Drysdale said that the Syndicate therefore had to re-examine the peril of wildfire and how to underwrite it. He observed that there was still an abundance of capacity available in the industry, particularly in the reinsurance arena. “After two very disappointing years for Property Reinsurance underwriters there has still been no major pricing correction,” with good clients still able to achieve an “as before” or even a small reduction. Drysdale said that he had “always felt that the real malaise has been in the direct market; that the profits made in the reinsurance classes in 2015 and 2016 simply hid the fact that the direct classes had already slipped into a period of unsustainable rates”.

Drysdale said that he was “greatly encouraged to see that we are currently seeing the most marked improvements in the worst performing direct lines of business”. Classes that had performed poorly at market level for far too long have been put under the spotlight. These included Marine, Aviation, International Property and a number of Casualty classes.

“Many of our underwriters now have a spring back in their step as finally they are allowed to underwrite!” Drysdale said, noting that credit had to go to Lloyd’s for forcing the issue in a number of classes.

Drysdale observed that the syndicate had not written its planned income for a number of years, because good new business was difficult to find. This year he was “confident that we will write much closer to plan than we have in recent times, or perhaps even exceed it”.

“Overall I look forward to 2019 with more excitement and optimism than I have felt in a number of years. We are seeing genuine change, and I know that we have the people throughout Atrium to take full advantage of the opportunities that are apparent”, Drysdale concluded.

https://www.lloyds.com/investor-relations/financial-performance/syndicate-reports-and-accounts/2006/06/0609