Syndicate results 2020 #17 Syndicate 2010 Lancashire MMX

Active Underwriter J M Barnes

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.

The principal activity of Syndicate 2010 remains the transaction of general insurance and reinsurance business in the UK at Lloyd’s. The main lines of business are non-marine and aviation reinsurance, direct and facultative property, and cargo specialty. LSL is the managing agent for Syndicate 2010. It also acts as managing agent for Syndicate 3010.

Cathedral Capital Holdings Limited (CCHL), registered in England and Wales, is the immediate parent company of LSL. Lancashire Holdings Limited (LHL), incorporated in Bermuda, is the ultimate parent company of LSL.

LHL is the largest group and CCHL is the smallest group, which includes LSL and for which the consolidated financial statements are prepared.

Within the Lancashire Group there are two (re) insurance companies, Lancashire Insurance Co (UK) Ltd (incorporated in the UK) and Lancashire Insurance Co Ltd (incorporated in Bermuda). In addition, the Lancashire group includes Lancashire Capital Management Ltd (incorporated in Bermuda) which is the underwriting manager for Lancashire Capital Management Ltd, a special purpose insurer.

In 2020 the managing agent and Syndicate adopted the “Lancashire” brand to bring it in line with its parent company. “This gives the Syndicate the benefit of the larger brand whilst still retaining its core values and product offering”, the managers said.

$’000s 2018 account 2019 account  2020 account 31 December 2020 31 December 2019
Gross premiums written 22,774 274,306 297,642 313,569 285,375
Gross premiums earned 107,042 178,284 187,705 299,606 278,044
Net premiums earned 87,820 104,317 106,890 207,643 187,950
Profit/(loss) for the financial year 22,093 (30,689) (54,776) (5,833) 7,762
Loss ratio (%) 47.8 86.3 110.0 72.0 60.4
Combined ratio (%) 76.8 129.3 153.4 104.6 97.9

2018 underwriting year result

The 2018 year of account closed at the end of 2020 with a profit of $6.0m, representing a return of 1.4% of capacity for capital providers with standard expenses. The gross signed premium income, net of brokerage, was about 63.8% of capacity at year-end rates of exchange.

The Syndicate noted that it had always adopted a conservative approach to reserving. Following an extensive review of loss reserves in Q4 2020, the Syndicate benefited from a favourable improvement in 2018 and prior year loss reserves, which contributed to the positive 2018 Year of Account result.

2019 underwriting year account forecast

The current forecast for the 2019 year of account result is in the range 0% to -10.0% of capacity. As with all years, due to the nature of the business written, any fluctuation in dollar to sterling rate would influence the final result. The result was potentially more volatile than a standard year because of a high level of major loss activity.

2020 result

The result for the 2020 calendar year was a profit of $5.8m, down from $7.8m the previous year. The combined ratio was 104.6%, up from 97.9% the previous year.

The net loss ratio for the 2020 calendar year was 72.0%, up from 60.4% in 2019.

Lancashire said that the market experienced another loss active year, with a record number of storms during the North Atlantic hurricane season, a large Derecho storm in the US midwest, Californian Wildfires, the Beirut port explosion and the ongoing Covid-19 global pandemic. These events impacted the classes written by Syndicate 2010, as well as following “a challenging period for insurers and reinsurers through the high loss active years 2017-2019”.

GWP for the calendar year rose 9.9% to $313.6m, from $285.4m the previous year. The Syndicate increased the amount of premium income written on the Direct and facultative property and Aviation accounts. There was a reduction in the non-marine reinsurance account, largely due to underwriting actions taken in order to reduce attritional losses in the portfolio and to improve overall profitability. There were lower inwards reinstatement premiums

Lancashire observed that during the depths of the soft cycle, many questioned if the cycle was dead after years of softening rates and no obvious sign that appetite and capital would shrink. “However, we stuck to our belief that supply and demand always dictate our market and ultimately there will always be events and circumstances, often those that are completely unexpected, that tip the balance”, the syndicate’s managers said.

Given this belief, the syndicate’s managers “ensured the foundations were laid during the softer part of the cycle to ensure the Syndicate was primed to build when better market conditions returned”. It added that “we believe that these market conditions are now here, and we are looking forward to 2021 and beyond encouraged that the building blocks we put in place have put us in a strong position as we look to grow our business in the future”.

The managers said that the green shoots of recovery started in 2018, following the numerous natural catastrophe events in 2017, which was the largest aggregate loss year on record for the (re)insurance industry. “Then 2018 provided further catastrophe losses and challenges, including the first sight of reserve deficiencies in the long-tail casualty classes following the impacts of social inflation on loss costs”, the managers said. “Momentum was building, and as we entered 2020 our outlook was positive.”

It was then that market momentum further accelerated following events that few had foreseen, the syndicate said. “The Covid-19 pandemic impacted the entire world and every industry. It will undoubtedly be costly for the (re)insurance industry, albeit the exact quantum will not be known for many years, given the complex nature of the recent events.”

The syndicate said that the impacts would generate some of the most challenging losses the (re)insurance industry had ever faced. “The cost and uncertainty it has brought to the market, at a time when the industry was grappling with sustainable profitability, has been the catalyst for pricing, as well as terms and conditions of coverage, to shift gear.”

It was this change of pace that strengthened the syndicate’s belief that “the underwriting landscape would be better than we originally hoped for in 2020, and more importantly was sustainable into 2021 and beyond”.

Terms and conditions in both the Cargo and Accident and Health class were experiencing improvements which the syndicate expected to continue in 2021. “This specialty class may be expanded to include other classes in the future. Providing positive market conditions prevail, the plan is to grow this class into a more meaningful size in order to add some positive diversity to the Syndicate”, the managers said.

The syndicate summarized that “from every angle 2020 has been challenging”.

The multiple loss events across classes that include Covid-19 would generate some of the most complex losses the industry has ever faced, and the Lancashire Syndicate result reflected this challenging year. Covid-19 also presented operational challenges, with LSL and the Syndicate working from home for large portions of the year. “We are incredibly proud of the underwriting team, and everyone that supports them, for continuing to execute our underwriting strategy so seamlessly and successfully”, the managers said. They felt that 2021 “should be an exciting year for the Syndicate and the wider Lancashire group”.

Covid-19

The vast majority of the Syndicate’s policies required physical property damage in order to trigger Business Interruption coverage (contracts are not written on a ‘all-risks’ basis) and as a result the Syndicate’s managers did not expect Covid-19 to generate a large number or amount of BI claims.

Outlook

During 2020  terms and conditions in the Syndicate’s core classes improved for a third consecutive year and it was expected that this trend would continue in 2021. Although the managers did not believe that we were entering into a truly “hard” market in 2021, four years of compound improvements in t’s & c’s “should have a material positive impact on future results, provided loss activity is in line with planned expectations”.

The Syndicate capacity for the 2021 year of account increased to £324.9m, from £305.9m due to the anticipated increase in premium income for 2021, largely as a result of improving market conditions and opportunities for the Syndicate.

Sector analysis

2020 $’000s GWP GPE Gross claims Net op exps Reins Bal Total excl inv ret Net tech prov
Direct MAT 13,694  10,318 (11,487) (2,061) 1,248 (1,982) 2,723
Total 125,746 116,148 (64,953) (31,619) (23,890) (4,314) 110,958
Reinsurance acceptances 187,823 183,458 (153,604) (36,133) 1,051 (5,228) 231,221
Total 313,569 299,606 (218,557) (67,752) (22,839) (9,542) 342,179
2019 $’000s GWP GPE Gross claims Net op exps Reins Bal Total excl inv ret Net tech prov
Direct MAT 6,365 6,201 (4,130) 1,585 (637) 3,019 1,207
Total 107,106 104,354 (59,968) (23,068) (10,719) 10,599 81,629
Reinsurance acceptances 178,269 173,690 (115,093) (47,448) (17,841) (6,692 ) 253,496
Grand Total 285,375 278,044 (175,061) (70,516) (28,560) 3,907 335,125

The Active Underwriter, the highest paid director, received the following aggregate remuneration charged to the Syndicate:

$’000 2020 2019
Emoluments 433 412

https://www.lloyds.com/about-lloyds/investor-relations/financial-performance/syndicate-reports-and-accounts/2006-2010