Syndicate forecasts as at 30 June 2020
Lloyd’s has released updated forecast for all syndicates supported by third party capital. These forecasts are based on data to the end of June and are for the currently open 2018 and 2019 years of account. A schedule of all syndicate forecasts is available here.
2018 Year of Account
The 2018 year of account is now at the tenth quarter of development. It has been impacted by catastrophe activity in the form of wildfires in California and Australia, hurricanes in the Caribbean and the USA and typhoons in Japan. More recently, the worldwide pandemic has impacted the year, both by managing agents reducing their expectations of investment earnings for the year and also because some insurance policies, including trade credit, accident & health and contingency have responded to claims following nationally imposed lockdowns and restrictions on movement. The year is currently forecast to be a loss. While we expect the final result to be better than the current forecast (the 2017 account improved by around 1.6 percentage points between the tenth quarter and closure at the twelve quarter), we believe that there is little scope for improvement, with fewer syndicates able to make meaningful releases from reserves.
In aggregate, the Lloyd’s market is forecasting a loss of 6% of capacity for the 2018 Year of Account. The average position for clients of Argenta Private Capital Limited is lower, with a loss of 4% of capacity now forecast. There has been a modest improvement in the quarter. Sixteen syndicates have improved their midpoint forecasts, with the largest improvements coming at the two extremes of performance. Nuclear Syndicate 1176, managed by Chaucer, has improved its forecast profit of 25% of capacity to 35%. At the other extreme, Hiscox SPA 6104 has reduced its forecast loss by 10 percentage points. The catastrophe specialist reinsurer has re-evaluated exposures to 2018 catastrophes including Typhoon Jebi. Five syndicates have worsened their 2018 forecast, including important third party syndicates QBE 386, Beazley 623 and Blenheim 5886. Both 386 and 623 have a longer tail profile than average, and in both cases reserves for older years have required strengthening.
2019 Year of Account
The 2019 account bears the lion’s share of the Covid-19 losses. A number of syndicates have advised us of a worsening of the expected loss position on this series of events. We are cautious as to the final outcome. This is an unusual event, unlike any claims’ professionals have experienced in the past. Hiscox and TMK are notable in having increased loss provisions. Syndicate 33 has deteriorated by 6 percentage points in the past quarter, while TMK is forecasting losses for both its third party syndicates, 9.5% of capacity for 510 and 2.4% for 557.
Ordinarily, we expect to see an improvement in forecasts at the sixth quarter stage. This is because US catastrophe business written with a 1 May, 1 June and 1 July inception date comes off risk by 30 June the following year. However, any improvement in this respect is not visible due to the increase in provisions for Covid-19 related losses.
There has been some recent loss activity, which will impact on the year to an as yet unknown degree. Hurricane Isaias is estimated by some to have caused $4 billion of property damage across Puerto Rico, the Dominican Republic, the Bahamas and parts of the USA. The massive explosion in Beirut is likely to impact on parts of the hull and cargo market as well as those marine underwriters writing ports and terminals. The aviation market has experienced losses after a fire on an Ethiopian Airlines Boeing 777 in Shanghai and an Air India Boeing 737 skidded off the runway at Kozhikode killing 18 passengers and crew. Not least is an oil spill and potential cost of clean-up following the grounding of a cargo ship off the coast of Mauritius. On the other hand, the recent slow-down in general economic activity has, according to anecdotal comment from the market, reduced attritional losses.
Lloyd’s will report on the market’s results for the first half year on 10 September and will release syndicate forecasts for the third quarter on 11 November.
2021 – business planning
Managing agents are now heavily engaged in the business planning process for 2021. Syndicates with third party capital are required to lodge plans with the Underwriting Performance Management team on 3 September. The market has hardened rapidly. Property business improved in the wake of the 2017 hurricane season, followed by three continuous years of rate improvement. Other classes, including marine and casualty, started the same process slightly later, with meaningful increase beginning in 2018. The reinsurance sector has been slowest to respond, with only modest increases achieved for renewal in 2018 and 2019. However, in 2020 reinsurance terms are now improving significantly, notably for Japanese and Floridian business, which renewed in April and June respectively, but also in other territories, with most underwriters and brokers believing that further sustained price movements will follow throughout 2020 and into 2021 at the least.