Syndicate results 2019 #18 Syndicate 2121 Argenta

Ian M Maguire – Active Underwriter Syndicates 2121 and 6134

The Lloyd’s syndicates have now published their results and, in some cases, added detail and an outlook for 2021. As in the past three years, IMN is summarizing the results from all syndicates that have a marine interest which have provided some information on the marine side.

Structure

Syndicate 2121 continues to underwrite a well balanced portfolio of both insurance and reinsurance business across a broad selection of marine and non-marine classes. The portfolio is weighted towards direct and short tail accounts; however, longer tail business is also underwritten.

AUA has two branch offices in Australia; one in Sydney CBD and one in Tuggerah, north of Sydney. The Tuggerah branch operates as a managing general agent predominantly in the New South Wales region, underwriting a niche property account. Finally, the syndicate has access to Chinese domiciled reinsurance business through a dedicated underwriting division of Lloyd’s Insurance Company (China) Limited (LICCL) based in Shanghai.

ASML is the Lloyd’s managing agency subsidiary of Argenta Holdings Ltd (AHL), a private company with diversified interests in the Lloyd’s insurance market. AHL is wholly owned by Hannover Rück SE (Hannover Re) whose immediate parent undertaking is Talanx AG.

Hannover Re has for some time supported Syndicate 2121 as both a traditional reinsurer and with the provision of capital. ASML has maintained a strategy of steadily growing the syndicate, with capacity increasing from £340m in 2018 to £600m in 2021.

The growth strategy has been achieved by the selective addition over the years of new classes of business to complement the existing portfolio, plus continued organic growth in a number of areas.

The syndicate underwrites a broad cross section of classes including marine, property, energy and utility on predominantly a short tail basis; and casualty, liability marine and energy and elements of the UK insurance and specialty classes with longer tail characteristics.

In 2018 ASML established SPA Syndicate 6134, to be managed alongside Syndicate 2121. Syndicate 6134, which is sponsored and capitalized by Hannover Re, underwrites quota share reinsurances of business written by Syndicate 2121 as the host syndicate.

A strategy of growth has also been adopted in respect of Syndicate 6134. In 2018 the syndicate underwrote gross net written premium of £22.2 million across specific classes of business within the underwriting capability of the host syndicate. This increased to £32.6 million and £100.9 million for the 2019 and 2020 years of account respectively. For the 2021 year of account the expectation is that Syndicate 6134 will underwrite £66.3 million of gross net premium. The reduction in gross net written premium, over that written in 2020, reflects a realignment of certain classes of business as between Syndicate 6134 and Syndicate 2121 as the host syndicate.

Syndicate 2121 retains at least 10% of the business introduced by the sponsor.

A strategy of continued growth has also been adopted in respect of Syndicate 6134. In 2018 the syndicate underwrote gross net written premium of £21.9m. For the 2020 year of account the expectation is that Syndicate 6134 will underwrite £105.6m of gross net premium and it was expected 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.

The portfolio underwritten can be broken down into six main areas, of which marine (hull, war, liability, cargo and specie) is one.

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

The marine book consists of traditional classes including hull, cargo, specie, war, fine art and liability, both in conjunction with physical damage lines and on a standalone basis.

Report

Argenta said that the start of 2020 witnessed the early stages of a welcome and necessary correction in market conditions. Since then the Covid-19 pandemic had added to uncertainty in the global economy and financial markets and this had driven a continued improvement in pricing.

Argenta said that this, coupled with the ongoing action by Lloyd’s requiring all managing agents to produce remediation plans in respect of all Decile 10 classes, had helped maintain market discipline.

The 2020 Atlantic hurricane season was the most active and the fifth-costliest on record. It was also the only the second season in respect of which it was necessary to utilize additional Greek lettering in the storm naming process (the first being 2005).

2020 also saw the continuation of major bushfires in Australia, plus devastating tornadoes affecting the state of Tennessee.

Manmade insured losses in 2020 totalled $83.1bn, up from the $63.1bn in 2019, but down on the $94.1b recorded during 2018.

Apart from worldwide Covid-19 losses, the largest natural catastrophe loss incurred by the syndicate was in respect of Hurricane Laura, while the largest incurred manmade loss was a natural gas leak reported in the casualty class.

The losses from Covid-19, Australian bushfires, Hurricanes Laura and Sally, Tennessee tornadoes and the natural gas leak were all mitigated by the syndicate’s reinsurance protections.

“The re-underwriting that the syndicate has undertaken over the last few years is starting to pay dividends, as demonstrated by the combined ratio, excluding Covid-19 losses, of 94%”, the Syndicate said.

On a whole account basis the overall rate increases on business that was renewed in 2020 was 12.6%, compared to the original plan that anticipated an increase of 4.4%.

Reductions in planned income were seen in the casualty treaty account as the new team did not commence underwriting until mid-January 2020. As a result, the team was not able to benefit from the significant January 1st renewal season for this class. The sub-class review within the casualty class continued, resulting in lower income levels than originally anticipated.

Credit insurance exposures within the political risks class were also deliberately reduced. Smaller reductions were seen in the terrorism, marine liability and UK commercial combined classes.

These reductions in premium income estimates were offset, in part at least, by an increase in premium written within the specialty and utility books. Terms there improved “significantly and quickly”.

Smaller increases were seen in the cyber account, the property treaty class and the direct property books in London and Singapore. Increased income was experienced in the new financial lines classes as business volumes, which developed more quickly than anticipated and at much better terms

The 2018 year was impacted from expected Covid-19 losses as the main UK facilities exposed to the event incepted during the second half of the year with risks attaching for a period of 12 months thereafter, providing businesses annual cover for property, business interruption and public and employer’s liability.

The 2018 year also witnessed a significant increase in losses when compared to the long-term average from a catastrophe perspective, with the syndicate’s largest natural catastrophe losses arising from the California wildfires, the Hawaiian volcanic eruptions, Hurricanes Michael and Florence in the US and from Typhoon Jebi in Japan.

On a gross basis, the losses from these individual events largely fell within the retentions on the syndicate’s reinsurance programme, thus resulting in a reduced level of reinsurance recoveries.

There had been little movement in the syndicate’s net position on these compared to 12 months ago.

From a manmade loss perspective, the largest losses were a fire that destroyed fine art on an estate in the Hamptons, and a Brazilian warehouse fire – hitting the specie and cargo accounts respectively. The 2018 year of account was impacted by a number of losses arising on the political risks book.

The Syndicate said that, because of the continued uncertainty around the final outcome of the impact of Covid-19 losses and the need to ensure equity between capital providers on the different years of account, the 2018 year of account was being left open for the time being. The latest estimate for the forecast result is a loss in the range of 5% to 15%.

For the 2019 year of account the Syndicate said that the overall impact of Covid-19 losses on the year would be significantly influenced by the final outcome of legal rulings in Australia.

The syndicate also incurred losses from Typhoons Hagibis and Faxai in Japan, Hurricane Dorian in the US, extensive flooding in Townsville, Australia and major bushfires affecting Australia. There was also a large flood loss in Wisconsin in the utility account, a fire loss emanating from business underwritten by the Sydney office and a number of political risks losses that would also fall to the 2019 year of account. The Syndicate said that, overall, the 2019 forecast result had worsened from last year, due largely to the losses expected from Covid-19.

For the 2020 year of account,  reserves were being held in respect of anticipated Covid losses in this year, but they were smaller than those in the 2019 year of account. However, the syndicate said that it had to be recognized that this was an ongoing situation and there remained a significant degree of uncertainty.

The largest losses aside from Covid-19 to impact the syndicate in 2020 so far were the catastrophe losses already referred to and, in particular, the Tennessee tornadoes.

In addition, there were two fire losses emanating from the utility account.

The introduction of the new financial lines team further diversified the class of business spread and was a greater success than anticipated with business developing more quickly than expected and terms and conditions improving in these classes.

Overall the 2020 forecast result was currently developing behind the business plan target, due to the impact of Covid-19. There was a significant element of 2020 business still on risk throughout a large part of 2021. The syndicate hoped that this would develop more favourably over the months ahead.

Referring to trading conditions for 2021, the Syndicate said that losses from the coronavirus pandemic dominated the industry results for 2020, but came at a time when the syndicate, and the wider market, was starting to see some success from the re-underwriting strategy adopted over the past few years.

There had been a strengthening of trading conditions, first seen during the second half of 2019, and these were gaining momentum. There was evidence of further strengthening over the January renewal season.

Rate movements for 2021 were predicted to continue to be positive, with expectations that they would increase by a further 8.7% in 2021. on top of the 2020 increase of 12.6% at a whole account level.

The January 1st 2021 renewals were better than expected, with rates at a whole account level increasing by 11.3%. The syndicate said that the fact that it was seeing double digit rate increases back-to-back clearly demonstrated “dramatically improving terms”.

The syndicate’s appetite for catastrophe exposure had not changed from previous years and the risk metrics for major US perils were expected by the syndicate to remain consistent with previous years at a whole account level.

The syndicate will continue to purchase a comprehensive reinsurance programme, the 2021 structure of which has been slightly enhanced from last year’s placement. The largest increases in targeted premium volumes for 2021 are in the treaty reinsurance, property and utility accounts.

The syndicate has withdrawn from hull and war completely in London, as well as accident & health and energy renewables and all stand-alone hull and war in Singapore and China. It is only renewing current risks written when hull is part of a combined class slip in Singapore and China.

KPI 2020 2019
Capacity (underwriting year) £425m £340m
Premiums written gross of commission £587m £458m
Net premiums earned £329m £312m
Profit/Loss (£37m) (£9m)
Claims ratio (net) 74% 65%
Covid-19 losses (£63m) 0
Combined ratio 113% 105%
CR excl Covid-19 94% 105%
Cash and investments at 31 December £348m £289m

Particulars of business written

2020 £’000s GPW GPE Gross claims Op exps Reins Bal. Total
Direct MAT 40,009 43,232 (25,889) (15,438) (1,549) 356
Energy 39,517 35,707 (24,024) (9,798) (2,303) (418)
Total 447,857 396,260 (348,052) (135,240) 35,639 (51,393)
Reinsurance acceptances
MAT 27,077 26,355 (28,959) (9,624) 2,917 (9,311)
Energy 18,880 15,963 (4,253) (4,080) (2,716) 4,914
Grand Total 586,912 524,040 (425,706) (168,491) 26,422 (43,735)
2019 £’000s GPW GPE Gross claims Op exps Reins Bal. Total
Direct MAT 40,009 43,232 (25,889) (15,438) (1,549) 356
Energy 31,925 30,340 (43,180) (8,986) 15,435 (6,391)
Total 378,429 363,117 (292,894) (121,602) 18,209 (33,170)
Reinsurance acceptances
MAT 21,206 22,723 (11,688) (7,990) (4,161) (1,116)
Energy 10,871 10,278 (2,675) (3,033) (1,534) 3,036
Grand Total 457,938 443,872 (348,673) (145,626) 33,361 (17,066)

The following aggregate remuneration was charged to the syndicate in respect of the active underwriter:

£’000 2020 2019
Emoluments 390 380

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