Syndicate results 2021 #4 Faraday 435

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.

Active Underwriter Chris Thorne

Although Syndicate 435 is Faraday’s main platform, its capabilities have been enhanced by the formation of Faraday MGA Ltd, which provides a means to accommodate clients’ needs when the Lloyd’s platform does not. The MGA has a binding authority to write business on behalf of Berkshire Hathaway International Insurance Limited (BHIIL) and with General Reinsurance AG (GRAG); both are related companies.

Elisabeth Richardson, Company Secretary, said that, although Covid-19 continued to impact Faraday throughout 2021, this was predominantly from an operational perspective, with staff working from home for much of the year.

Reserves established at the end of 2020 in relation to losses directly attributable to the pandemic increased by only a modest amount in 2021. There remained considerable uncertainty in the ultimate cost of these losses but Faraday believed that it had currently reserved prudently in line with its standard reserving philosophy. Underlying gross written premium income for Syndicate 435 increased by 11.2% in 2021, notably due to the addition of the Financial Lines team and continued growth in the Commercial Lines business. This was tempered by depressed premiums in the Travel and Airlines accounts due to Covid-19, and Property Treaty business being poorly priced against increasing climate change risk.

During much of 2021 the syndicate achieved rate increases slightly in excess of the initial business plan, with the continuing improved rating environment for the Commercial Lines portfolio being of particular note.

Rate increases for certain areas slowed in the last quarter of 2021. This meant that the overall rate increase was marginally below the plan for the year.

2021 was impacted by a greater incidence of natural catastrophes compared with priced expectations. The syndicate was affected by Winterstorm Uri in Texas, the Bernd Floods in Europe, and Hurricane Ida, which made landfall in Louisiana.

The loss reserves established as a result reflected “Faraday’s minimal appetite for any deterioration in its reported loss position”.

The syndicate’s whole account catastrophe excess of loss reinsurance was not expected to be triggered by any of the 2021 events, although some team-specific reinsurances were expected to respond.

The Property Treaty team was loss making due to the above average natural catastrophe activity in 2021 tempered by reductions in prior years’ loss estimates. The team had maintained some potential exposure to Covid-19 business interruption losses. Rates were less positive than in some other areas and the 2021 income forecast for this book was not achieved.

The Commercial Lines portfolio continued to perform well in 2021 due to further rate increases, as well as generally favourable experience net of the team’s catastrophe excess of loss reinsurance.

Actions to strengthen the pricing and reserving of the US Casualty business taken in recent years appeared to have been adequate during 2021. Rates for this business were increasing, although claims costs were increasing also. Workers’ Compensation business continued to perform well.

The Aviation market had seen on-going rate increases since 2018, following several years of overcapacity and poor rating. There was now some evidence of a slowdown in rates. The book generated a profit in 2021, aided by minimum premium clauses being triggered for certain 2020 year of account arrangements due to a lack of flying activity.

The EL/PL book was profitable in 2021, continuing to benefit from re-underwriting of the book implemented over the past few years and favourable loss activity over the year.

The International Casualty and Motor books were profitable in the year due to favourable claims run-off.

The Accident & Health and the Agriculture teams, new to Faraday in 2019 and 2020 respectively, were building up portfolios of business.

In 2021 a Financial Lines team joined Faraday. It performed well, writing £30m of premium in its first year.

The directors continued to consider the impact of Covid-19 on the syndicate’s financial strength, taking into account a number of factors including the ability to access and transact business being mindful of our robust underwriting criteria.

Looking ahead, Faraday said that rate increases continued to be seen across various lines of business in 2022. There were on-going challenges with surplus capacity in particular areas.

KPI

2021 £000 GPW GPE GCI NOE Reins Bal Total
MAT 14,178 13,409 (8,035) (3,103) (1,196) 1,075
Total direct 233,935 206,160 (119,011) (58,656) 1,891 30,384
Reinsurance 215,704 210,635 (103,606) (50,575) (35,497) 20,957
Total 449,639 416,795 (222,617) (109,231) (33,606) 51,341
2020 £000 GPW GPE GCI NOE Reins Bal Total
MAT 12,194 12,058 (7,115) (3,573) (876) 494
Total direct 182,014 177,809 (135,687) (53,502) 9,296 (2,084 )
Reinsurance 222,344 230,357 (76,718) (61,469) (67,610) 24,560
Total 404,358 408,166 (212,405) (114,971) (58,314) 22,476

The role of Active Underwriter received the following emoluments charged as a syndicate expense.

Emoluments: 2021, £643,000 2020, £519,000

https://assets.lloyds.com/media/fddeeed1-8631-465c-b59e-d0b110d0e71c/SRA0435a.pdf