Syndicate results 2020 #12 Navigators Syndicate 1221

Active Underwriter Colin D Sprott

The Lloyd’s syndicates have now published their results and, in some cases, added detail and an outlook for 2020. 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.

In 2020, against what was described by the Syndicate as “a buoyant insurance market”, navigators Syndicate recorded significant rate rises across most classes of business with an overall rate rise of 28%.

However, the Syndicate reported an overall loss and a combined ratio of 121.4%, due to Covid-19 related reserve-strengthening, large current accident year losses within the Marine division, and prior-year reserve strengthening within the Financial Lines division.

During 2020 the Syndicate continued with its qualitative rolling remediation review of all policies and delegated authority relationships across all lines of business. The purpose of this review was to re-balance the overall underwriting portfolio to focus on growing more profitable segments of business whilst reducing exposure to, or exiting from, underpriced or unprofitable lines. This was reflected in a 15.7% reduction in GWP in 2020.

However the 2021 Syndicate Business Forecast recorded a £10m increase in Syndicate capacity, from £265m to £275m for the 2021 year of account. This was in order to take advantage of the favourable underwriting conditions.

On May 23rd 2019 Connecticut-based insurer The Hartford completed its $2.1bn acquisition of Navigators Group Inc, of which the Syndicate is a member.

Work to integrate the Syndicate into The Hartford continued apace throughout 2020, “allowing the Syndicate to leverage the wider Group resources across a number of functions, including Underwriting and Underwriting Operations, Actuarial, Finance, IT and Claims”.

The Syndicate is The Hartford’s main underwriting platform for international operations outside of the USA.

£000 2020 2019 %
Gross premiums written 302,452 358,647 (15.7)
Net premiums written 247,700 280,650 (11.7)
Net earned premiums 256,608 271,203 (5.4)
Net operating expenses 99,923 110,269 (9.4)
Investment income 7,567 7,824 (3.3)
Combined Ratio 121.4% 126.4% (5.0pp)

GWP for 2020 was £302.5m, down 15.7% year on year. This decrease was primarily driven by the Syndicate’s continued portfolio remediation exercise through 2020, resulting in the exit from certain lines of business and reducing the size of the delegated authority book across most classes of business.

NWP and NEP decreased by 11.7% and 5.4% respectively. As well as the reduction in GWP, there were also reductions in ceded reinsurance expenditure in Financial Lines and Marine & Energy.

Net operating expenses fell by 9.4% year on year, mainly due to reductions in commission payable and a decrease in administration expenses relating to one-off items incurred in 2019.

Investment income recorded a slight decrease of 3.3% year on year due to a decrease in investment yields and more funds under investment. The overall investment result, which is net of investment expenses, was flat at £20.9m, from £21.0m in the prior year.

The Syndicate’s combined ratio decreased from 126.4% in 2019 to 121.4% in 2020. The decrease was driven by:

  • Reduced commission cost experienced on open market business, coupled with the reduction of delegated authority business, which attracts higher commission rates.
  • Reduced management expenses.
  • Lower, albeit still significant, prior and current year reserve strengthening

At year end 2020 Member’s funds stood at £110.9m, down from £142.1m 12 months earlier.

During 2021 Syndicate 1221 will close the 2018 YOA with a loss of £76.8m, compared to a loss of £45.1m on the 2017 year of account, which was closed during 2020.

The Syndicate has reported reserves of £22.7m gross and £20.0m net to Covid-19, with a £10m net loss due to direct impact in the Marine & Energy and Global Re divisions. The Syndicate’s remaining exposure is due to the potential secondary economic impact created by government action and lockdown restrictions affecting business written in the Financial Lines division.

Even if restrictions were to continue through 2021 the Syndicate said that it did not currently believe its booked reserves would materially increase. The Syndicate’s operations were not materially impacted by Covid-19 or the associated lockdowns during 2020. The technology, operational infrastructure and detailed planning enabled the business to continue in a work from home environment.

Marine & Energy

During 2020, and following the decision to discontinue Syndicate 1221’s Downstream Energy and Power & Utilities classes of business, it decided to combine the remaining Upstream Energy class within the Marine division under single leadership. The core Marine portfolio continues to write a broad section of the Marine market, concentrating on Cargo and Transportation, Marine and Energy Liability and Specie.

During 2019 the Syndicate took the decision to exit Hull business because of a poor performance and stagnant market conditions. The Hull line has been in run-off since Q4 2019. During 2020 the syndicate also ceased writing Marine War.

Market conditions within the chosen classes were favourable through 2020, with double digit rate rises recorded across the division as a whole. The Syndicate expects rate rises to persist in 2021 across all lines, although at a lower overall quantum than seen in 2020.

The Global Re division forms part of the wider assumed reinsurance offering of The Hartford, with the Syndicate providing access to London Market business. The division writes a stable portfolio of business, concentrated on International Property Treaty. During 2020, the decision was taken to discontinue the Marine Treaty and Agriculture classes of business. The division recorded an underwriting loss during the year, primarily due to Covid-19 losses within the Property Treaty class.

2020 £’000 Gross premiums written Gross premiums earned Gross claims incurred Net operating expenses Reinsurance balance Total
Direct Marine 20,722 22,692 (17,761) (6,449) 1,181 (337)
Energy – marine 43,079 41,174 (25,523) (14,586) (48) 1,017
Reinsurance 63,002 61,412 (56,552) (14,270) (3,868) (13,278)
Total 302,452 321,189 (272,900) (99,911) (3,275) (54,897)
2019 £’000 Gross premiums written Gross premiums earned Gross claims incurred Net operating expenses Reinsurance balance Total
Direct Marine 24,464 27,745 (19,220) (9,536) (2,363) (3,374)
Energy – marine 39,760 39,577 (14,780) (12,393) (8,534) 3,870
Reinsurance 28,071 28,746 (32,140) (5,866) (1,204) (10,464
Total 358,647 360,712 (331,539) (110,269) 9,534 (71,562)

Salary/emoluments

Syndicate 1221 does not directly employ any staff. All employees engaged on Syndicate business are employed by Navigators Management (UK) Limited (NMUK) that charges the Syndicate with a single management fee for its share of group expenses. This fee is included within net operating expenses. The charge from NMUK to the Syndicate does not specifically identify the cost of employees or directors. Details of staff costs and numbers of the Syndicate are included within the financial statements of NMUK.

The Directors of Navigators Underwriting Agency Limited received the following aggregate remuneration charged to the Syndicate and are included within net operating expenses:

£000’s 2020 2019
Emoluments 818 756
Pension costs 83 44
Total 901 800

https://www.lloyds.com/about-lloyds/investor-relations/financial-performance/syndicate-reports-and-accounts/2006-1221