Syndicate results 2021 #46 QBE 2999

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.

The Syndicate comprises four trading units, or sub-Syndicates. The Syndicate was headed by Sam Harrison, Managing Director of QBE’s Insurance Division; and Steve Postlewhite, Managing Director of QBE’s Reinsurance division, as joint active underwriters up to April 1st 2021, following which Lloyd’s approval was received for the appointment of Peter Burton, Executive Director of Insurance Markets, to replace Sam Harrison as joint Active Underwriter going forward.

Sub-Syndicate Classes of business

  • 566 Reinsurance: property; aviation; casualty treaty; personal accident; and marine
  • 1036 Marine insurance: hull; energy; liability; specie; cargo; war; ports; and political risks
  • 1886 Non-marine general liability; professional and financial lines; motor; specialty and; marine P&I
  • 5555 Multi-line facility business

The Syndicate said that the Covid-19 pandemic remained a significant area of focus during 2021. The UK Supreme Court judgment of January 15th 2021 regarding the FCA Property Business Interruption Test Case that was found largely in favour of policyholders has been implemented by QBE, and the required notifications to policyholders and regulators have been made. Uncertainty remained in relation to the ultimate impact on claims liabilities in respect of a challenge to the deductibility of furlough payments, which has been raised in the Stonegate litigation, and questions regarding multiple claims locations.

The Syndicate said that it had a comprehensive reinsurance programme that would significantly reduce the net exposure to its Covid-related losses.

The Syndicate participated in the Trade Credit reinsurance scheme established by the UK Government during the current and prior years.

On November 19th 2021 the Syndicate signed a commutation agreement in respect of its Divisional Large Risk & Catastrophe (DLRC) intra-group reinsurance contracts, covering the 2015 and 2017 accident years. The contracts were commuted at the contract limit. The consideration will be received by the Syndicate in 10 equal quarterly instalments, with the final payment due in Q4 2023.

The Syndicate said that it had performed an initial review of the potential impact of the conflict between Russia and Ukraine on the Syndicate’s operations and future results. The Syndicate is exposed to Political Violence, Political Risk and Marine classes within Ukraine and the neighbouring countries, although the net exposure is mitigated to a significant extent by treaty and facultative reinsurance.

The impact of sanctions, as well as the impact of the conflict on the valuation of financial assets was at this stage not expected to be material, although the situation would be kept under review.

KPIs

£m 2021 2020 (restated)
Gross written premium 1,483.3 1,474.3
Net earned premiums 1,109.7 1,063.2
Net claims (697.2) (656.3)
Acquisition costs (314.7) (301.7)
Other net operating expenses (59.5) (56.2)
Net underwriting profit 38.3 49.0
Investment return 3.9 39.9
Non-technical account (expense) (24.7) 17.3
Total profit for the year 17.5 106.2
Claims ratio 62.8% 61.7%
Combined operating ratio 96.5% 95.4%

The Active Underwriters said that the 2021 financial year had produced a total profit for the year of £17.5m (restated 2020 profit £106.2m) and a combined operating ratio of 96.5% (2020 95.4% ).

Overall gross written premium of £1,483m (restated 2020: £1,474m) was up about 5% year on year at constant rate of exchange. This reflected the continued improvement in market conditions across all major product lines, with actual rate experience for the syndicate’s 2021 underwriting year concluding at +12.2%, versus +10.7% approved plan.

Although 2021 witnessed continued disruption from the global pandemic and consequential impact to both public health and economic wellbeing, the year saw the beginnings of a global recovery and concluded with a positive outlook, despite heightened risk from a resurgent Covid-19 and inflation.

The impact to the Syndicate during 2021 financial year has been limited, comprising:

  • No material increase in claims incurred via inward reinsurance exposures through sub-syndicate 566, or business interruption insurance exposures written primarily by sub-syndicate 1886.
  • Continued benefit from lower attritional claims experience in certain portfolios, driven by a lack of activity during lockdown periods
  • No major disruption to its operations and people, both of which continue to prove resilient in the new normal hybrid working environment.

2021 witnessed the fourth-highest ever incidence of global insured catastrophe losses, reaching $112bn (2020: $99bn), including $7bn of man-made catastrophe losses. Hurricane Ida was the costliest natural disaster, with winter storm Uri and other secondary peril events contributing more than half of the total natural catastrophe losses, as wealth accumulation and climate change effects in disaster-prone areas drive claims.

With losses from Hurricane Ida, US winter storms (Uri and Texas) and European Floods (Bernd), Syndicate 2999’s net catastrophe loss experience was marginally worse than expectation, albeit manageable, due to the favourable rating environment, combined with a beneficial reinsurance programme. This resulted in a net ultimate claims ratio of 62.8% (2020: 61.7%).

Investments yielded £3.9m or 0.4% (2020 profit: £39.9m). Returns were impacted by increases in market yields on fixed income holdings. Fixed income represents circa 98% of the syndicates overall portfolio and produced 0.1% return for the year, materially offsetting the positive 12.6% return from the small allocation of growth assets.

The non-technical account charge of £24.7m principally comprised a foreign exchange loss arising from the revaluation of non-monetary balances.

Outlook

The Syndicate said that its rating outlook for 2022 was more modest than that achieved for 2021, reflective of “the tapering of most product lines and geographies due to increased competition as the overall market flexes appetite in the positive underlying environment”.

Notwithstanding this, the Syndicate said that the rating environment remained robust and that the year had started well with actual January 2022 renewals achieving about +6% rate, versus full year plan +4.4%.

For 2022 there was a planned GWP growth of 7.9%, including risk-adjusted rate change.

The Syndicate noted that the significant catastrophe loss experience in 2021 had added further fuel to the debate around the efficacy of the catastrophe models and their ability to reflect underlying trends in frequency and secondary perils, ostensibly resulting from climate change. This had led to capacity shrinkage and appetite adjustment in cat exposed business, driving a strong pricing environment, particularly in loss impacted areas.

Syndicate 2999 had reviewed its exposure to US catastrophe events for 2022 and was de-risking areas of US coastal exposures. This was in response to inadequate pricing and the continued high frequency and severity of natural peril events. The Syndicate has increased its catastrophe modelled and non-modelled loss allowances to cater for the increased level of uncertainty.

Prior year adjustments

A restatement has been made to the 2020 Balance Sheet and Cashflow Statement as a result of a reclassification required between trade and other receivables and trade and other payables relating to treaty business to reflect corrected information on the nature of these balances.

A restatement has been made to the 2020 Profit & Loss – Technical account and Balance Sheet to correct the values of gross premium written, gross written commission and debtors arising out of direct insurance operations to align with the signed premium values. This has also had an impact on associated claims reserves and reinsurance balances.

A restatement has been made to the 2020 Balance Sheet and Cashflow Statement as a result of a reclassification required between Investment balances and Cash at bank and in hand to correct the presentation of these balances in line with FRS 102. This adjustment does not impact the Profit & Loss – Technical account or the Statement of Comprehensive Income.

A restatement has been made to the 2020 Cashflow Statement as a result of a reclassification required for the treatment of overseas deposit balances held, to reflect the correct nature of these balances in line with FRS 102.

Segmental Information

2021 £m GPW GPE GCI Op Exps Reins Bal Total
MAT 201.7 205.5 (170.2) (39.0) 7.9 4.2
Total Direct 948.8 911.6 (636.2) (283.6) 0.6 (7.6)
Reinsurance 534.5 512.9 (295.8) (109.1) (62.1) 45.9
Grand Total 1,483.3 1,424.5 (932.0) (392.7) (61.5) 38.3
2020 £m GPW GPE GCI Op Exps Reins Bal Total
MAT 206.5 196.4 (150.7) (39.3) (3.9) 2.5
Total Direct 921.9 850.2 (618.4) (271.9) (2.8) (42.9)
Reinsurance 552.4 531.5 (337.4) (111.5) 9.3 91.9
Grand Total 1,474.3 1,381.7 (955.8) (383.4) 6.5 49.0

The Directors of QUL and the Active Underwriters received the following aggregate remuneration charged to the Syndicate and included within net operating expenses:

£m 2021 2020
Directors of the Managing Agent 2.2 2.8
Active Underwriters 0.7 0.9

https://assets.lloyds.com/media/22744c5b-7c62-4c84-aa19-22700614c7d5/SRA2999a.pdf