Syndicate results 2021 #44 Brit 2987

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.


$m 2021 2020
GPW 2,727.3 2,333.4
NEP 1,257.4 1,406.8
Tech result 66.7 (144.4)
Investment income (1.4)
Result for the Financial Year 65.6 (140.9)
CR 95.2% 113.9%

Gross premiums written increased by 16.9% to $2,727.3m (2020: $2,333.4m). At constant exchange rates, the increase was 15.3%.

London Market Direct business increased by 23.7% to $1,663.9m (2020: $1,344.7m), while London Market Reinsurance increased by 19.9% to $639.6m (2020: $533.4m) and Overseas Distribution increased by 24.5% to $407.9m (2020: $327.5m).

Growth arose in the core London Market Direct classes and Reinsurance classes, reflecting a strong rating environment and targeted growth where opportunities presented themselves. These increases were partially offset by withdrawal from a number of underperforming classes, and the non-renewal of certain accounts due to poor performance or pricing inadequacy.

All divisions achieved rate increases, with the largest achieved in almost all of the London Market Direct classes and Ambridge Specialty Casualty. The retention rate for the period was 83.7% (2020: 76.1%).

Reinsurance expenditure in 2021 was $1,457.2m or 53.4% of GPW (2020: $905.9m – 38.8% of GPW), an increase of $551.3m. This increase primarily reflected a loss portfolio reinsurance contract with RiverStone Managing Agency Limited (for and on behalf of Lloyd’s Syndicate 3500).

Under the terms of this reinsurance, the Syndicate ceded predominantly legacy years of account on certain classes and certain discontinued classes of business for a premium of $279.2m.

Excluding this transaction, reinsurance expenditure was $1,178.0m or 43.2% of GPW, representing an increase of $272.1m over 2020.

At the start of 2021 the Syndicate purchased a new catastrophe XL contract linked to a Brit-sponsored Cat Bond issued in late 2020 by a segregated cell of Sussex UK. Both the XL contract and bond have a four-year term and the aggregate cost of the cover was booked in 2021, resulting in an elevated cost of reinsurance. However, the cost of this cover is earned over the term and so the impact is lessened at the net earned premium level. Additionally, higher premium levels on adjustable excess of loss contracts and proportional reinsurance treaties as well as increased Cyber protections increased the total reinsurance spend in 2021.

The Syndicate reported an underwriting profit of $60.2m (2020: loss of $196.1m) and a combined ratio of 95.2% (2020: 113.9%). The underwriting result included a profit on the loss portfolio reinsurance contract to RiverStone of $24.7m. Absent this contract, the underwriting profit for the year was $35.5m, and the combined ratio was 96.0%.

Major Losses $m 2021 2020
Texas winter storms 49.1
Hurricane Ida 114.7
European floods (Bernd) 9.6
Nashville Tornadoes 10.8
US Civil Unrest 9.1
Hurricane Laura 47.5
Hurricane Sally 20.4
Hurricane Zeta 11.5
Total before COVID-19 related losses 173.4 99.3
COVID-19 related losses 19.7 215.0
Total 193.1 314.3

2021 also saw a high level of non-Covid-19 related major loss activity, with an estimated $112bn of global insured losses arising from natural catastrophes and man-made events, a 13% increase over 2020, and the fourth-costliest on record. Swiss Re’s estimated global economic loss of all 2021 events was approximately $259bn (2020: $216bn).

The main events impacting the Syndicate in 2021 were Hurricane Ida, the Texas winter storms and the European floods. The net impact to the Syndicate of the claims incurred from these events was $173.4m, or 13.8pps on the combined ratio (2020: $99.3m/7.9pps). Hurricane Ida and the Texas Winter Storms have been significant market losses, both of which were bigger than any individual major loss event in 2020, the Syndicate said.

Because the Syndicate’s European Property Treaty exposure is relatively limited the European Floods did not result in a significant financial loss to the Syndicate.

The financial impact of COVID-19 on the Syndicate significantly reduced in 2021, with an overall net impact of $19.7m or 1.6pps of the combined ratio (2020: $215.0m, 15.3pps of the CR. As with 2020, Covid-19 predominantly impacted the Contingency (Event Cancellation) book during 2021.

Benefits arising from the effects of Covid-19 related restrictions, such as reduced volumes of commercial activity and suspension of court hearings, were reflected within the reduced attritional claims ratio. The Syndicate noted that Covid-19 was a highly unusual insurance event, ‘earning’ over a prolonged period. Estimating the overall cost was highly subjective and there remained uncertainty around losses from Covid-19.

The Syndicate said that its underlying claims performance in 2021 was strong, with a reduction in the attritional loss ratio of 5.1pps to 43.7% (2020: 48.8%). This reflected favourable underlying claims experience across the London Market Direct portfolio (principally Property, Specialty and Programs and Facilities) and the effect of strong compound rate increases, combined with a change in mix as the Syndicate targets growth on high-performing segments while taking remedial action on more marginal business.

The result included $88.9m of prior year reserve releases (7.1% on the combined ratio) and, adjusted for the loss portfolio reinsurance, improved the combined ratio by 5.8% (2020: 3.5%). The total prior year release also included a release of $28.7m in relation to this contract.

Net investment return for the 2021 financial year totalled $6.5m, down 87.1% decrease from the previous year’s return of $50.3m. The portfolio benefited from the fall in interest rates in 2020, but the rising yield curve in 2021 negatively impacted the investment portfolio as the US government bond yield curve rose by up to 90 basis points across the yield curve over the year.

The portfolio remains short duration, which benefited the portfolio in the rising yield environment.

The stamp capacity for the 2022 year of account was raised by 6.6% to $2,530m (2021 year of account $2,373m) with the level of planned premium being written increasing by 13.0% compared to the 2021 year of account plan.

The Syndicate once again noted that the cost of doing business in the London market remained elevated. “The market needs to become more efficient in processing and work with distribution partners to become more competitive in local markets”, it said.

It also noted that, despite the welcome withdrawal of some capacity, available capacity continued to exceed demand. “In a number of markets in which the Syndicate operates, competition from local carriers is increasing”, it said.

While 2021 saw the economy start to return to normal, albeit with delays caused by further Covid-19 related restrictions and supply chain imbalances, lower but still above-trend growth was expected through 2022. Heightened volatility was anticipated as the economy tried to navigate higher inflation and the gradual withdrawal of monetary stimulus.

The Syndicate said that the Russian invasion of Ukraine was a cause for uncertainty. “This uncertainty may have an impact on insurance claims impacting the syndicate or it may impact financial markets which could in turn have consequences on the valuation of the syndicate’s investment portfolio”, it said.

Segmental information

2021 $m GPW GPE GCI Op Exps Reins Bal Total
Direct MAT 153.5 138.7 (66.4) (42.7) (12.6) 17.0
Total Direct 1,557.0 1,447.8 (863.7) (423.5) (136.0) 24.6
Reinsurance 1,170.3 1,122.3 (661.8) (362.0) (62.9) 35.6
Grand Total 2,727.3 2,570.1 (1,525.5) (785.5) (198.9) 60.2
2020 $m GPW GPE GCI Op Exps Reins Bal Total
Direct MAT 147.8 141.9 (97.6) (44.0) 8.0 8.3
Total Direct 1,368.2 1,341.6 (1,078.1) (404.1) (17.9) (158.5)
Reinsurance 965.2 982.9 (630.4) (327.6) (62.5) (37.6)
Total 2,333.4 2,324.5 (1,708.5) (731.7) (80.4) (196.1)

The active underwriter received the following remuneration in respect of the Syndicate. This remuneration was paid to the active underwriter by the Managing Agent from the fixed it charged to the Syndicate:

$m 2021 2020
Aggregate remuneration 0.6 0.9