Syndicate results 2021 #37 Argenta 2121 (and 6134)

The Lloyd’s syndicates have now published their results for 2021 and, in some cases, added detail and an outlook for 2022. Some have stuck to the bare bones. 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.

During 2021 the active underwriter of Syndicate 2121 changed with the appointment of Ian Burford on July 1st 2021, implemented October 4th.

Ian Burford – Underwriting Director and Active Underwriter Syndicates 2121 and 6134 (appointed October 4th 2021).

Ian M Maguire – Active Underwriter Syndicates 2121 and 6134 (resigned May 7th 2021)

ASML is the Lloyd’s managing agency subsidiary of Argenta Holdings Limited (AHL) which is wholly owned by Hannover Rück SE 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 also manages a Special Purpose Arrangement, Syndicate 6134, which operates alongside Syndicate 2121. Syndicate 6134, sponsored and capitalized by Hannover Re, underwrites quota share reinsurances of business written by Syndicate 2121 as the host syndicate. Syndicate 2121 retains at least 10% of the business introduced by the sponsor.

Syndicate 6134 writes quota share reinsurances across specific classes of business within the underwriting capability of the host syndicate. In 2018 these included elements of the property, terrorism, specialty, cyber and political risks accounts. In 2019 this was extended to include elements of the marine hull and war, marine and energy liability, marine cargo and marine specie accounts. This was further extended in 2020 with casualty treaty as well as financial lines business consisting of professional indemnity, financial institutions, and SME specialty liability accounts, being added. The estimated ultimate gross net written premium of Syndicate 6134 for the 2020 year of account is £111.8m, for the 2021 year of account it is £64.9m and for the 2022 year of account the expectation is that the gross net written premium will be £76.5m.

Syndicate 2121 charges Syndicate 6134 an overriding commission in relation to these arrangements. For the 2018, 2019, 2020 and 2021 years of account, other than in respect of political risks business, this commission was charged at a rate of between 5% and 11% of gross net written premium. In respect of political risks the overrider is charged at a rate of 30% of gross written premium, although Syndicate 6134 is not charged its share of original acquisition costs for this class.

At December 31st 2021 creditors included an amount of £156.5m (2020: £98.0m) owed to Syndicate 6134.

The syndicate operates within the Lloyd’s insurance market in London and through a service company, Argenta Underwriting Asia Pte Ltd (AUA), on the Lloyd’s Asia platform in Singapore. AUA has branch offices in Australia, one located in the central business district of Sydney and the other located 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 had access to Chinese domiciled reinsurance business through a dedicated underwriting division of Lloyd’s Insurance Company (China) Ltd (LICCL) based in Shanghai. The Syndicate has withdrawn support from LICCL for the 2022 and subsequent years of account.

The portfolio underwritten can be broken down into seven main areas: property (including terrorism, UK commercial combined and transportation); energy (offshore, utilities and liability); marine (hull and war, liability, cargo and specie); specialty (political risks, cyber, warranty and indemnity); worldwide treaty; casualty; and financial lines. The largest book of business remains the direct and facultative property account.

The Syndicate said that it had entered 2021 “hoping that the extraordinary challenges of 2020 would soon become a distant memory. Sadly that was not to be the case as the world continues to be gripped by the Covid-19 pandemic”.

The Syndicate said that, due to the ongoing nature of the Covid-19 event there remained “a significant degree of uncertainty on the ultimate quantum of total insured losses likely to emerge globally”. It also noted that at the time of writing there were still some important legal rulings outstanding that could affect the way that policy wordings would be interpreted and that would ultimately have a material impact on the validity and payment of certain claims.

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

KPIs

£m 2021 2020
Capacity (underwriting year) £600m £425m
Premiums written gross of commission £655m £587m
Net premiums earned £367m £329m
Result for the year profit/(loss) £9.8m (£37m)
Claims ratio (net) 57% 74%
Combined ratio 98% 113%
Cash and investments at 31 December £512m £348m

Calendar year 2021 started with an unusual loss event in February 2021 when a very severe winter storm and freeze, (Uri), hit the US state of Texas, causing around $15bn of insured damage. In total it was estimated the losses that occurred during the year caused around $120bn of insured damage, with the largest single loss event being Hurricane Ida, which hit the US in August and which caused an estimated total insured loss of around $36bn.

An extremely damaging flood hit central Europe in July, causing around $13bn of insured damage and up to $40bn of economic losses. The year closed with a severe outbreak of tornadoes across the US Mid-West, and a wildfire in Denver, both occurring “out of season” in December 2021.

2021 was the second most costly year in terms of natural catastrophe losses, with 2017 being the most costly.

The positive rating momentum of 2020 continued into 2021. The Syndicate said that it was “important that this momentum continues in 2022 and beyond as we face the combined headwinds of climate change and economic and social inflationary issues”.

The syndicate produced a combined ratio for calendar year 2021 of 97.6%, equating to a profit of £9.8m.

The Syndicate said that during 2021 “it quickly became apparent that the original Syndicate Business Forecast (SBF) for the 2021 year of account would require a mid-year revision as the syndicate saw material risk adjusted rate change (RARC) increases over the original SBF estimate of 8.7%. During 2021 the overall RARC at the syndicate level was 12.4%. That increase, coupled with numerous growth opportunities (particularly in the casualty pillar), led the syndicate to request from Lloyd’s a mid-year increase in the SBF. At the 2021 SBF exchange rates, the planned gross written premium increased from £634m to £659m.

For the 2018 year of account, whilst the effects of Covid-19 were still being felt in this year of account, during 2021 the syndicate began to see some stability and therefore felt more confident about the ultimate outcome for this year. This changed during Q4, however, when the syndicate became aware of a new court case, CG Restaurants & Bars v RSA that, along with Stonegate v MS Amlin, was expected to challenge the basis upon which claims had been paid to date. “In spite of this unwelcome development, the board of ASML has concluded that we have now reached a point where we can close the 2018 year of account with a loss of 12.2% of capacity”.

The 2019 year of account was also affected by Covid-19 and the associated business interruption claims. There were still a number of ongoing legal issues to be sorted before finality cold be reached and this year was particularly exposed to the decisions of the High Court in Australia. “At the time of writing this report, whilst a positive ruling has been received on the first appeal of their Test Case 2, this may still be subject to a further appeal and other rulings are still awaited”. As a result the syndicate was unable to determine its ultimate liability to claimants in respect of BI claims in Australia with a reasonable degree of confidence. “It is, therefore, a huge disappointment to announce that the Board of ASML has decided that the correct course of action at the current time will be to keep the 2019 year of account open with a current forecast loss range of (5%) to (20%)”.

Covid-19 affected multiple years of account, including 2020. The impact on this year, however, was relatively modest when compared to the 2019 year of account. During the past 12 months the 2020 year of account continued to perform in line with reserving expectations, although the midpoint of the forecast result was disappointingly some way off its initial SBF expectations, with a current result forecast of 8% to (2%). There was, however, a significant element of 2020 business still on risk throughout a large part of 2022 and beyond and it was hoped that this would continue to show a favourable development over the months ahead.

For the 2021 year of account the settlement of Hurricane Ida claims was taking an inordinately long time, possibly exacerbated by the effects of the Covid-19 pandemic, “so we are still some way from finality but we are confident that our loss estimates, again based on good quality information, are robust”.

At the time of writing this report the Syndicate said that the performance of the 2021 year was lagging behind the original SBF, mainly due to the extraordinary run of natural peril events mentioned above. There remained a material proportion of 2021 business “on risk” so there was plenty of opportunity for those risks to develop more favourably over the coming months.

He Syndicate observed that, from a general market perspective Lloyd’s continued to apply “a firm hand” to the poorer performing classes and syndicates, materially restricting growth where they deem necessary to maintain market discipline and mandating portfolio changes to improve the overall Lloyd’s result.

The Syndicate said that the majority of Syndicate 2121’s remedial work was done during 2019 and 2020 so, “notwithstanding the challenges faced during 2021, we are now beginning to see the positive impact of the recent re-underwriting on those affected classes”.

The overall market conditions were good in most areas.

The syndicate said that it continued to take advantage of the improving market conditions and that there had been evidence of further strengthening over the January 2022 renewal season. RARC movements for 2021 exceeded its forecast in the plan and for 2022 it was predicting further increases again across most product lines. “The momentum, however, is beginning to slow as we enjoy the benefits of at least three years of compound RARC increases for most of our classes. Our RARC estimate for 2022 is therefore 5.9% across the whole syndicate”.

The overall RARC for January 2022 was 8.1%.

The plan for 2022 was to increase gross written premium income by around 10% year on year to £694m at Lloyd’s 2022 monitoring exchange rates. The area with the largest planned growth was the casualty pillar that started writing in 2020.

Offsetting this the syndicate had withdrawn from a Lloyd’s casualty consortium that was first written in 2013 and was a strategically important relationship at the time as it added an element of balance to what was a very short-tail product mix. “With the arrival of our casualty team in 2020 this relationship no longer had any strategic value so we decided to remove ourselves from the consortium at the end of 2021 and allocate that capacity to our own casualty team”.

With effect from the 2022 year of account the Syndicate decided to exit the Lloyd’s China platform. “After much deliberation we reached the conclusion that we could no longer see a long-term strategic benefit of being part of the platform. We will therefore be managing an orderly run-off for our remaining exposures derived from the territory”, the Syndicate said.

Ukraine

The Syndicate said that it was  rigorously adhering to the new sanction requirements for the limited exposure that it had to the named individuals, Russia and Russian owned assets.

Segmental Information

2021 £000s GPW GPE GCI GOE Reins Bal Total
Direct MAT 43,108 43,756 (34,578) (16,141) 38 (6,925)
Direct Energy 39,987 37,552 (24,123) (10,991) (3,651) (1,213)
Total Direct 489,986 474,318 (242,019) (162,971) (58,921) 10,407
Reinsurance acceptances            
MAT 34,189 30,718 (27,579) (9,546) 7,596 1,189
Energy 17,044 16,312 (6,733) (4,430) (220) 4,929
Total Reinsurance 164,931 150,597 (103,991) (40,677) (7,377) (1,448)
Grand Total 654,917 624,915 (346,010) (203,648) (66,298) 8,959
2020 £000s GPW GPE GCI GOE Reins Bal Total
Direct MAT 49,959 48,542 (46,932) (16,267) 17,775 3,118
Direct Energy 39,517 35,707 (24,024) (9,798) (2,303) (418)
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
Total Reinsurance 139,055 127,780 (77,654) (33,251) (9,217) 7,658
Grand Total 586,912 524,040 (425,706) (168,491) 26,422 (43,735)

An overall improvement of £5.0m on prior years’ provisions was experienced during the year. Improvements of £0.9m on motor, £16.9m on fire and other damage to property and £2.2m on pecuniary loss were partially offset by deteriorations of £6.0m on third party liability, £2.5m on energy, £3.3m on reinsurance acceptances and £3.0m on marine, aviation and transport.

(2020: An overall deterioration of £2.9m on prior years’ provisions was experienced during the year. Deteriorations of £1.3m on energy, £2.1m on fire and other damage to property, £1.6m on liability and £2.6m on reinsurance acceptances were partially offset by improvements of £0.6m on motor (other), £1.3m on marine, aviation and transport and £2.7m on pecuniary loss.)

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

£000s 2021 2020
Emoluments 282 390

https://assets.lloyds.com/media/d5df3a06-12b8-4840-9233-6bf99200e691/SRA2121c.pdf