Lloyd’s has released updated forecasts for all syndicates supported by third party capital.  These forecasts are based on data at the end of September and are for the 2018 and 2019 years of account.  A schedule of all syndicate forecasts is available here.

2018 year of account

 

The forecasts for the 2018 year of account are now reporting their status after 11 of the 12 quarters of development.  The final result will be published in 2021 once the last quarter closes at the end of December.  As a result there is a growing level of confidence that these forecasts will be relatively close to the final result when it becomes known. A forecast of the movement on closed years of account is included in the quarter 11 estimates, although the final analysis, where the movements can be material, will be included at the year end. Managing agents begin to report full year results in February, but the complete set of syndicate results is expected to be available on 19 March 2021.

The updated forecasts show a modest improvement in the managing agents’ midpoints, although in aggregate Argenta clients are in loss.  The average forecast loss across our portfolio has improved by 1.0% to a midpoint of -3.0%.  The gap between the Argenta client result has widened as  in aggregate the Lloyd’s market is forecasting a loss of 5.5% of capacity, a forecast which has improved at midpoints by 0.6 percentage points.  A number of syndicates are showing improvements; Hiscox 33, Cincinnati 318, TMK 510, Beazley 623, Lancashire 2010, MAP 2791 and Beat 4242 are amongst the cohort whose midpoint has improved by more than 1% of syndicate capacity.  DTW 1991, Canopius 4444 and Beazley 6107 are the only active and syndicates / SPAs that have increased their forecast losses. 

2019 year of account

The 2019 year of account still has 5 more quarters of development before it is due to close.  There are still a lot of policies that are on-risk, for example policies that were written in November and December 2019, giving greater chance for forecasts to remain somewhat volatile before the final result is known.  The 2019 year of account has the most material exposure to claims arising out of Covid-19. According to the second quarter data release, around two-thirds of the total claims cost has been allocated to the 2019 year. We will be reviewing the third quarter data for movements in the quantum and distribution of loss.  Most of the claims from the lockdown in spring 2020 fell into the 2019 year of account, whereas the 2020 account is bearing a greater share of the claims arising from the current, extended restrictions into the autumn.

Whilst the 2018 account has seen a modest improvement in the last quarter, the 2019 year of account has deteriorated.  For the average Argenta client, managing agents are forecasting a final result between a loss of 8% and a profit of 3.5%, the latest figures show a 0.9% deterioration in the forecast mid-point loss.  The greatest movements include Beazley 623, Cincinnati 318 and Beat 4242 and 6123.  While the movement on Beazley 623 relates to an increase in expected event cancellation claims in the contingency account, other syndicates have been impacted by the frequency of catastrophe loss in the third quarter of this year, including Hurricanes Isaias, Laura and Sally and the derecho in the state of Iowa.

2020 year of account and 2021

Managing agents will be releasing their first forecasts for the 2020 year of account in spring 2021.  Some indications are available and at this very early stage the main themes arising from our research are two-fold.  These are high-level trends seen across the market and are not syndicate-specific comments.  First, the market, broadly, is seeing premium volumes remain relatively buoyant.  In spite of much of 2020 being conducted in remote-working environments, business is being conducted and rates are improving.  There are segments of challenge such as event cancellation, aviation and classes associated with the price of oil such as energy and trade credit.  But broadly the reduced activity in these areas is offset by increases in general business flow into Lloyd’s and the rating environment that is continuing to improve.

The second theme is the extent and range of natural catastrophe claims that has been seen.  The gulf of Mexico hurricane season continues to be very active – 29 named storms have occurred at the time of writing and we are well into the Greek alphabet having exhausted the Sallys, Lauras and Vickys.  In addition 2020 saw a major ‘derecho’ in the US mid-west with hurricane wind-speeds impacting inland states.  These natural catastrophes combined with the impact of Covid-19 means that major loss budgets for many syndicates are being eroded.  It is simply too early to have a granular view but based on current estimates we believe 2020 is carrying enough rate to have a good chance at delivering a profit.  Rates are continuing to improve and the expectation is this trend will continue for 1st January renewals and throughout 2021.  The reinsurance market is now moving, having lagged the direct market in 2019 and early 2020, so the APCL forecast of 9.9% return on capacity is the best prospective forecast we have issued for several years.