Syndicate results 2020 #10, Chaucer Syndicate 1084

The Lloyd’s syndicates have now published their results for 2020 and, in some cases, added detail and an outlook for 2021. Some have stuck to the bare bones. As was the case last year, IMN is summarizing the results from all syndicates that have a marine interest, which have provided some information on the marine side.

Active Underwriter E Lines

  2020 $m 2019 $m
GWP 1490.3 1309.6
NWP 1089.7 904.4
NEP 975.9 875.7
Underwriting Result (47.0) 48.7(22.4)
Inv Return 54.4 59.7
Technical profit financial year 7.4 108.4
Non-technical a/c (18.4) (6.9)
Combined Ratio 104.5% 95.2%

GWP increased by 13.8% in 2020 to $1,490.3m (2019: $1,309.6m).

There was growth in both the Direct Insurance and Reinsurance elements of the portfolio. The increase was consistent with the Syndicate’s business plan for 2020. The 2020 business plan saw capacity increase to £1bn from £789m.

Rates on renewal business across the majority of classes continued the improvement which began in 2019, with internal portfolio management actions, alongside wider (re)insurance market remediation actions, contributing to this and also presenting attractive new business opportunities.

Net written premiums increased by 20.4% to $1,089.7m in 2020 (2019: $904.4m) with reduced cessions on quota share protection purchased to cover the syndicate’s reinsurance account. This was due to “a challenging retro market”, as well as active cycle management.

The underwriting result for 2020 was a loss of $47.0m, down from a profit of $48.7m for 2019. Net incurred claims increased from $492.2m in 2019 to $631.8m in 2020. The underwriting loss for 2020 was driven by a poorer catastrophe claims experience than in the previous year.

“The unprecedented global Covid-19 pandemic, along with National Lockdowns and the ensuing global economic slump, resulted in significant reserves being established in our Casualty, Political Risk and Credit, Property and Treaty Reinsurance classes”, the syndicate said.

Additionally, 2020 experienced a high frequency of natural catastrophe events, notably Hurricanes Laura, Zeta, Sally and Delta and the Midwest Derecho. However, Chaucer said that these were “of a relatively low severity”.  This meant that losses related to these events had limited recoveries from the syndicate’s excess of loss (XoL) reinsurance programmes.

2020 saw  more favourable prior year development than 2019, with significant releases on a number of large risk losses, following “favourable settlements”.

The loss for the year was $11.0m, compared with a gain of $101.5m the previous year. The combined ratio deteriorated to 104.5% from 95.2% in 2019.

Financial assets generated a 4% return ($54.4m, compared with 4.7% in 2019 ($59.7m). Assets rose to $1,446.6m from $1,331.2m.

The majority of financial assets are held in fixed income securities. These have experienced mark-to-market gains, primarily through exposure to movements in US risk free yields.

The Syndicate noted that these have declined to at or near zero following the decision of the US Federal Reserve to reduce interest rates in response to expected economic conditions during and post- pandemic.

“This action, coupled with further support mechanisms, such as quantitative easing and direct lending to corporates, has resulted in low reinvestment rates for high credit quality debt securities which form the core element of the Syndicate’s financial assets. This has reduced investment income during 2020 and will continue to impact future income as rates are predicted to stay low throughout 2021”, the syndicate warned..

Looking ahead, Chaucer said that the portfolio “should continue to provide a good underwriting balance and opportunities for profitable business development in 2021”.

The 2021 Business Plan sees capacity increased by a further 15%.

This was defined as “a positive response to the ongoing improvement in market conditions and the opportunities that Syndicate underwriters have identified, including establishing a presence in the strategically important Bermudian market”. The syndicate said that 2020 had been “a challenging year for the whole (re)insurance market given the backdrop of the global Covid-19 pandemic”. But it said that there had been positives, “most notably how the staff working on behalf of the Syndicate and infrastructure seamlessly adjusted to the National Lockdowns and work from home mandates, without comprising the quality of service provided to clients and brokers”.

Effective January 1st 2021 the Syndicate accepted the reinsurance to close (RITC) of the liabilities of AXA Special Purpose Arrangement Syndicate 6130 for the 2018 Year of Account.

R J Callan, Chief Financial Officer, said that the Syndicate had experienced “material underwriting losses arising from Covid-19 and the related recessionary impact”, but this was part of the normal course of its activities. The underwriting losses had been primarily recognized within the Syndicate’s Casualty, Political Risk & Credit, Property and Treaty reinsurance classes.

Callan said that the Syndicate had limited exposure to Business Interruption (BI) cover within the underwriting portfolios, and the recent Supreme Court ruling on BI had not materially increased the expected losses.

Sector figures

2020 $m Gross premiums written Gross premiums earned Gross claims incurred Gross operating expenses Reinsurance Balance Total Net technical provisions
MAT 91.6 87.0 (36.3) (49.1) (9.3) (7.7) 127.3
Total Direct 592.1 558.8 (379.4) (234.8) (16.2) (71.6) 976.6
Reinsurance inward 898.2 819.1 (450.1) (184.5) (159.9) 24.6 1,248.4
Total 1,490.3 1,377.9 (829.5) (419.3) (176.1) (47.0) 2,225.0
2019 $m Gross premiums written Gross premiums earned Gross claims incurred Gross operating expenses Reinsurance Balance Total Net technical provisions
MAT 83.8 90.7 (50.3) (40.5) (9.4) (9.5) 122.4
Total Direct 524.4 562.6 (326.4) (208.3) (35.01) (7.1) 875.2
Reinsurance Inward 785.2 732.5 (524.5) (154.6) 2.4 55.8 1,112.9
Total 1,309.6 1,295.1 (850.9) (362.9) (32.6) 48.7 1,988.1

The Managing Agent is recharged for staff costs by CUSL which employs all staff. The Managing Agent charges the following amounts to the Syndicate in respect of salary costs:

$m 2020 2019
Wages and salaries 40.5 33.3
Social security costs 4.8 4.2
Other pension costs 4.5 4.3
Total 49.8 41.8

Emoluments were:

$m 2020 2019
Directors of Chaucer Syndicates Ltd 1.7 1.9
Active Underwriter 0.4 0.4