Syndicate results 2018 #7 Beazley Furlonge Ltd 623, 2623, 3623, etc

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.

Beazley Furlonge said that Syndicate 623’s balanced portfolio, which had underpinned its consistent underwriting performance in recent years, meant it was able to weather the natural catastrophe events of 2018 and achieve a profit for the year of $9.1m (2017: $12.5m).

The syndicate’s risk budget decreased from $125m in 2013 to $89m in 2018. The risk budget will remain at $89m on the 2019 underwriting year. Gross premiums written increased to $478.2m (2017: $432.7m). The capacities of the managed syndicates are:

2018 £m2017 £m
26231,554.01,349.7
623351.0304.5
3623213.0215.0
610755.146.6
362223.019.5
562322.5
605014.6
Total2,218.61,949.9

Years of account

Beazley Furlonge reported a return on capacity of 8.7% for the 2016 underwriting year. The 2017 underwriting year currently forecasted to close with a breakeven position, due in the main to the adverse claims experience as a result of the 2017 natural catastrophe events. The 2018 underwriting year, which was still in its early stages of development, had been impacted by losses, namely Hurricanes Florence and Michael as well as Typhoons Jebi and Trami and the Californian wildfires.

Rating environment

The managers said that the catastrophe loss activity during 2017 had a positive effect on the rating environment, with rates increasing by 3% in 2018 across the portfolio (2017: decrease of 1%). Most of Beazley Furlonge’s lines of business saw increases in rates compared to 2017, with marine increasing by 3%, property increasing by 10%, reinsurance rates increasing by 6% and specialty lines increasing 1%.

Combined ratio

In 2018 the syndicate’s combined ratio fell 4pp year on year to 96%.

Claims

Total net insurance claims increased to $218.4m in 2018 (2017: $197.7m). The syndicate’s claims ratio reduced to 57% in 2018 (2017: 59%).

Releases

During 2018 prior year reserve releases fell to $25.1m (2017: $39.7m).

Releases2018 $m2017 $m
Marine3.02.4
Political, accident & contingency1.50.4
Property(10.6)3.0
Reinsurance5.312.1
Specialty lines25.921.8
Total25.139.7
Releases as a percentage of net earned premium6.6%11.8%

In 2018 the amount spent on outward reinsurance was $73.9m (2017: $73.7m).

Outlook

Due in the main to the effects of the 2017 natural catastrophe events, the 2017 YOA was forecast to close with a mid-point breakeven return on capacity. The 2018 underwriting year had been impacted by a large number of natural catastrophes, but Active Underwriter AP Cox said that “we have already seen rate increases in the latter part of 2018 and early 2019 across our property and treaty books as the market recalibrates its pricing of catastrophe exposed risks”.

Marine2018 $m2017 $m
Gross premiums written61.158.5
Net premiums written54.650.9
Earned premiums, net of reinsurance54.349.5
Claims incurred, net of reinsurance(29.0)(27.1)
Net operating expenses(21.3)(21.4)
Technical result4.01.0
Claims ratio53%55%
Expense ratio39%43%
Combined ratio92%98%
Renewal rate change3%(3%)

Premium rates for much of the business underwritten in the syndicate’s marine division started to rise last year, enabling the division to achieve a combined ratio of 92% on premiums of $61.1m (2017: 98% on premium of $58.5m), but competition remained intense.

Beazley Furlonge said that Lloyd’s decile 10 initiative had a significant effect on the marine market. “After several years of competition that drove the combined ratios of many syndicates well into triple digits, we saw a number of syndicates withdrawing from marine hull, cargo and aviation business. Hull, cargo and aviation rates have recently increased materially.”

The hull market was significantly impacted by one major loss after the superyacht Sassi caught fire while under construction at the Lürssen shipyard in Bremen in northern Germany in September 2018. The syndicate’s managers expected the loss to contribute further to rising premium rates in this market.

It was noted that the syndicate had achieved “consistent underwriting profitability within the marine division over the past 10 years, accounting for a quarter of the entire Lloyd’s marine market’s total profits between 2013 and 2017”.

Two smaller lines of business – marine and aviation war risks and satellite business – made good contributions to the syndicate’s overall profitability in 2018, although the war risks account had shrunk steadily in recent years.

“Political factors, such as tariffs on trade between the US and China, could potentially have a material effect on the volume of goods transported by our clients and thus on demand for hull and cargo cover, but we have yet to see any impact from such trade tensions.”

The larger energy account had reduced in size under the pressure of falling rates and a declining oil price from 2012, but this trend was reversed in 2018 as the rating environment began to improve. “Rising energy prices during much of the year also stimulated an uptick in exploration activity, benefiting our sub-sea team which insures the equipment used in offshore oil and gas exploration. For 2019 we plan to grow our energy business as well as our hull and machinery account.”

The syndicate’s risk profile has adjusted with the exit from the construction class of business within the property division and closure of the office in Norway which underwrote energy business within the marine division.

A report from the chief risk officer after he completed his secondment to the Atlanta office “provided assurance that the US operations have coped well with the recent growth and that processes and practices have evolved gradually to adapt to the risks and challenges associated with operating a larger company. As such, the US operations are well placed to achieve the planned growth over the next five years”.

Segmental analysis

2018Marine $mPolitical, accident & contingency $mProperty $mReinsurance $mSpecialty lines $mUnallocated $mTotal $m
Gross premiums written61.129.891.245.5250.6_478.2
Net premiums written54.625.379.130.2215.1_404.3
Gross earned premiums60.627.789.047.2229.3_453.8
Outward reinsurance premiums earned(6.3)(4.6)(13.0)(16.5)(33.2)_(73.6)
Earned premiums, net of reinsurance54.323.176.030.7196.1_380.2
Gross claims(23.1)(10.0)(71.8)(40.7)(116.4)_(262.0)
Reinsurers share(5.9)1.28.219.520.6_43.6
Claims incurred, net of reinsurance(29.0)(8.8)(63.6)(21.2)(95.8)_(218.4)
Operating expenses before foreign exchange(21.3)(9.4)(31.7)(10.2)(74.0)_(146.6)
Technical result before FX, investment income, other charges4.04.9(19.3)(0.7)26.3_15.2
Profit for the financial year4.04.9(19.3)(0.7)26.3(6.1)9.1
Claims ratio53%38%84%69%49%_57%
Expense ratio39%41%42%33%38%_39%
Combined ratio92%79%126%102%87%_96%

 

 

2017Marine $mPolitical, accident & contingency $mProperty $mReinsurance $mSpecialty lines $mUnallocated $mTotal $m
Gross premiums written58.5125.379.445.5224.0_432.7
Net premiums written50.920.765.729.6192.1_359.0
Gross earned premiums56.823.476.845.6205.2_407.8
Outward reinsurance premiums earned(7.3)(4.3)(13.4)(15.7)(31.0)_(71.7)
Earned premiums, net of reinsurance49.519.163.429.9174.2_336.1
Gross claims(43.5)(9.9)(62.0)(42.5)(105.3)_(263.2)
Reinsurers share16.41.47.121.119.5_65.5
Claims incurred, net of reinsurance(27.1)(8.5)(54.9)(21.4)(85.8)_(197.7)
Operating expenses before foreign exchange(21.4)(9.4)(28.7)(11.1)(68.5)_(139.1)
Technical result before FX, investment income, other charges1.01.2(20.2)(2.6)19.9_(0.7)
Profit for the financial year1.01.2(20.2)(2.6)19.913.212.5
Claims ratio55%45%87%72%49%_59%
Expense ratio43%49%45%37%40%_41%
Combined ratio98%94%132%109%89%_100%

https://www.lloyds.com/investor-relations/financial-performance/syndicate-reports-and-accounts/2006/06/0623