Syndicate Results 2020 #42 Syndicate 1969 Apollo Underwriting

Active Underwriter N G Jones

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.

KPIs $m 2020 2019 Change
Gross premium written 553.7 522.2 6%
Net premium written 286.3 274.2 4%
Net premium earned 272.9 265.6 3%
Profit/(Loss) for the financial year 9.4 4.3  
Claims ratio 63% 67% (4pp)
Expense ratio 36% 35% 1pp
Combined ratio 99% 102% (3pp)

The syndicate said that the combined ratio improvement from 102% to 99% reflected Apollo’s continued enhancements to both the balance and quality of the portfolio;

It noted an improved profitability and combined ratio, despite an unusually active North Atlantic wind season, with Hurricane Sally and Laura estimated to cost $21.5m and adding 8% points to the combined ratio;

Covid-19 related losses were termed “comparatively modest” with an estimated net cost to Syndicate 1969 for the 2020 calendar year of $13.6m.

During 2020 there was a development of a strategic partnership with Compre to establish specialist legacy Syndicate 1994 for the 2021 year of account. The first deal written was the reinsurance to close of the 2017 and prior liabilities of Syndicate 1969. Apollo said that this significantly reduced the risk of adverse claims development for the Syndicate 1969 members;

The syndicate also reported “continued improvements to underlying underwriting margins, with risk adjusted rate changes on renewal business of 17% for 2020”.

Market conditions improved through 2020 and this was expected to continue throughout 2021.

Premium growth in 2020 of 6% to $553.7m (2019: $522.2m) saw the most significant growth areas in “Insuring Businesses of Tomorrow, Today” (IBOTT) Rover ($17.9m) and Property Treaty ($9.3m). These two classes are supported by Special Purpose Arrangements 1971 and 6133 respectively.

The underlying growth for other business was $4.3m, where growth across a number of lines was offset by reductions in other areas which had been impacted by economic slowdown and the effects of the Covid-19 pandemic.

Rate increases across the syndicate averaged 17% in 2020, following increases of 9% in 2019. The most significant were in Property D&F (19%), Non-Marine Liability (45%), Aviation (22%) and Marine Hull (18%).

The 2020 calendar year result was affected by the frequency of catastrophe losses. The majority of catastrophe losses in North America came from a number of small and medium-sized events.

These natural catastrophes contributed significantly to the syndicate’s overall result for the year, as North America is where the syndicate has a significant proportion of its exposure. Hurricane Laura, Hurricane Sally and the Midwest Derecho event affected the Property Direct and Facultative, Property Binders and Property Treaty classes, while the wildfires in California, Oregon and Washington further affected the Property Treaty class.

The total net cost to Syndicate 1969 of these events for the 2020 calendar year was $23.4m, of which $20.9m was from Property D&F and Property Binders. The remaining $2.5m was incurred from the 10% net retained share of the Property Treaty class.

The calendar year result was also impacted by Covid-19 related losses. The estimated net cost to Syndicate 1969 for the 2020 calendar year was $13.6m, of which $4.0m each was from Property D&F and International Treaty.

The earned result for the 2020 year of account in the calendar year was a loss of $12.3m (2019: profit $3.1m).

For the 2018 closed year result the Marine & Energy Liability account suffered losses from the adverse performance of one particular facility, whilst the performance of the core book was within expectations. The facility was non-renewed in 2020.

The initial Lloyd’s approved plan for 2020 was to write gross premium of $615.2m although the current expectation was now $565.9m at the closing rate of exchange.

In marine, the syndicate said that the Specie class was seeing rate increases of between 5 to 10% on all business and “the best market conditions for 10 to 15 years”. The syndicate has recently employed “two recognized market leaders” to develop and grow this class of business alongside the existing team, coinciding with a hardening market following contraction of capacity.

The Cargo account in 2020 continued to build on the base established in 2019, which had been focused on six clearly-defined segments, with the objective of maintaining “a small, well-defined and profitable core book”.

The account has met income expectations for 2020 and the syndicate said that it was “seeing opportunities for income growth as the market trading environment improves”.

However, the early 2020 reduction in the price of oil and gas as a result of the Covid-19 pandemic meant that the syndicate’s planned increase in activity in that sector did not occur. The 2020 planned income for the Energy account was reduced by 16% as drilling well programmes were cancelled or delayed, rigs laid-up and construction plans shelved. The syndicate said that energy market continued to see small positive rate changes in 2020 of 3%, which might increase in 2021.

The Marine & Energy Liability class was seeing the start of improved trading conditions through increased rating levels and more attention to t’s and c’s.

“With signs of an improving rating environment ahead, we are looking to deliver more balance and diversity to the book, particularly in the Marine liability sector”, the syndicate said, noting that, following on from rate increases of 6% in 2019, the class achieved rate increases of 13% in 2020. “We expect this momentum to continue, if not increase, during 2021”, the syndicate said.

The Marine Hull market was now hardening, after many years of soft underwriting conditions. The syndicate noted that the withdrawal of key players from the class and the subsequent reduction in capacity had an effect on pricing. There had been a withdrawal of approximately 40% of the Lloyd’s Marine Hull market capacity, the syndicate said.

The overall rate rise for the class in 2020 was 18% following 29% in 2019. The syndicate said that it was “well-positioned to take advantage of this and we have therefore been able to write more business in 2020”. The largest sectors are blue water, yachts, brown water and offshore. A consortium was put in place during 2019 and was renewed again for 2021.

2021 and future plans

The Lloyd’s approved plan for 2021 was to underwrite $668.6m of premium income  This equates to $541.5m. The total stamp capacity of Apollo for 2021 is $589.0m (£475.0m at planned rate of $1.24, which is a 15% understatement of sterling’s value at early June 2021 rates).

The syndicate said that it would continue to focus on increasing the specialty insurance business classes in the syndicate, ensuring that these classes were appropriately balanced with the property and the casualty classes, in order to reduce volatility and deliver sustainable profits over time for capital providers.

Active underwriter NG Jones concluded that, although an active hurricane season and Covid-19 had served to generate a result for 2020 below that forecast, “we are seeing already that rates for renewals are increasing more than we expected in our 2021 Syndicate Business Plan”.

Sectors

2020 £000s GPW GPE GCI Op exps Reins Bal Total
Direct MAT 42,909 38,601 (13,079) (12,471) (4,559) 8,492
Total Direct 361,059 338,035 (219,318) (87,167) (42,055) (10,505)
Reinsurance 192,642 186,685 (98,309) (51,432) (24,818) 12,126
Grand Total 553,701 524,720 (317,627) (138,599) (66,873) 1,621
2019 £000s GPW GPE GCI Op exps Reins Bal Total
Direct MAT 35,692 38,845 (31,246) (10,486) 1,414 (1,473)
Total Direct 329,685 292,263 (236,763) (78,894) 11,734 (11,660)
Reinsurance 192,512 166,076 (70,824) (44,831) (44,505) 5,916
Grand Total 522,197 458,339 (307,587) (123,725) (32,771) (5,744)

Emoluments

The Active Underwriter received remuneration of $338,000, which is charged as a syndicate expense.

https://www.lloyds.com/about-lloyds/investor-relations/financial-performance/syndicate-reports-and-accounts/2016-1969