Syndicate forecasts as at 30 September 2021
Lloyd’s has released updated forecasts for the 2019 and 2020 years of account of all syndicates supported by third party capacity
There is a continuing improvement on the 2019 year of account, with members advised by Argenta Private Capital seeing their forecast as a return on capacity improve by around 1 percentage point. The 2019 account is due to close at the end of this year, and many managing agents begin to include an allowance for surpluses or deficits on older years at this stage, often supported by a dummy reinsurance to close calculation on figures as at 30 September. Notable improvements in the past quarter include key third party syndicates Hiscox 33, TMK 510 and Beazley 623, all of which improved midpoint forecasts by more than 2 percentage points.
The 2019 year bears the largest part of the covid-19 liabilities, which arise out of contingency, travel and political risk, business interruption under property insurance and property reinsurance classes. The vast majority of syndicates are reporting small favourable movements or no movements at all on this complex set of claims.
We would anticipate a further improvement in the final quarter before closure, as managing agents reevaluate liabilities as part of the year end reinsurance to close process. Syndicate investment funds, which are largely held in high quality, short dated, low risk assets including highly rated corporate and government bonds, do represent an area of volatility as markets react to the prospect of central banks increasing interest rates to combat inflation in the aftermath of the global pandemic. Bond portfolios go down in value when interest rates increase.
The 2020 account is essentially flat in the quarter. The underwriting year will bear a proportion of the losses to Lloyd’s arising out of August’s Hurricane Ida and flooding in parts of Europe. Under the underwriting accounting protocols, business is allocated to the year in which a policy incepts. So, for example, a policy with an inception date in October 2020 will be assigned to the 2020 underwriting year, and any losses to that policy accounted for in the 2020 syndicate accounts. This contrasts with annual accounting where unearned premium is transferred into the following accounting period and losses attributed to the year in which they occur. Syndicate forecasts will be impacted by lower expected investment income, although the bulk of the investment income for the 2020 year will be earned in 2022, following receipt of the 2019 reinsurance to close premium.
Most notable amongst the syndicates changing their forecast is QBE Syndicate 386, which, despite encouraging overall profit forecasts, has been impacted by some product contamination claims as well as a reduction in the forecast levels of investment income. Atrium Syndicate 609 has increased its forecast to a midpoint of 10% return on capacity, while TMK 510, Beazley 623 and MAP 2791 have held their 2020 forecasts unchanged. Hiscox 33 has increased its forecast loss on the year slightly, although the range continues to be large, accommodating a profit at the best end of the range.
Notwithstanding our concerns on investment returns, we expect a slow but steady improvement on the 2020 account that will continue during the 2022 calendar year, ahead of closure at the end of next year.
There are no formal forecasts of the 2021 year of account until the end of March next year, with these expected to be in the public domain in May. The 2021 underwriting year has benefitted from the continued strengthening of rating levels, especially across insurance lines, in a process than began in late 2017 but gained pace in 2020. Current incurred loss ratios are encouraging. The year will bear the majority share of losses to Lloyd’s arising out of European floods and Hurricane Ida. We expect the latter to be more material for the Lloyd’s market. While Ida is undoubtedly a substantial loss to insurers and will cause losses into reinsurance programmes, underwriters are suggesting that some press reports are exaggerating the overall scale of the event to the insurance industry. On the reinsurance side, underwriters say clients are not reporting the levels of loss that could be anticipated if the event was to be at the middle of analysts’ estimates, while on the insurance side, there are still few reported losses of any significance.
We are now approaching the end of the Atlantic hurricane season, and underwriters will be able to release some of the catastrophe provisions for the year. However, the underwriting year will remain on risk during 2022, including any further catastrophe losses that may emerge, and while we expect a good final result from the year in time, we expect initial forecasts to be conservative.
Lloyd’s CEO John Neal was far more optimistic when he commented recently that Lloyd’s is on track for a combined ratio better than 95% for the 2021 calendar year. While we think it bold to make such a pronouncement with more than two months, at the time, of the year to go with plenty of scope for slips twixt cup and lip. Nonetheless, we endorse such a positive statement about the health and prospects of the Lloyd’s market.
The full schedule of forecast results for 2019 and 2020 underwriting years at 30 September 2021 can be found here. The forecasts are expressed as percentage of allocated capacity and are after all standard personal expenses but before members’ agents’ charges. Results for closing, 2019, year and updates on the 2020 account will start to be declared by managing agents in February, with Lloyd’s expected to release the full schedule of syndicate results alongside the market results on 24 March 2022.
Who to Contact
Andrew ColcombHead of Syndicate Research, APCLDirect line: +44 (0)20 7825 7176