Lloyd’s has today released updated forecasts for all syndicates with participation by third party capital trading in the 2019 and 2020 years of account.  The forecasts are based on data to 30 June 2021, updating previous forecasts on data to 31 March 2021. 

The 2019 year of account is due to close at the end of this year.  Managing agents begin to include movements on closed years of account at this stage, and happily, given the conservative reserving of many Lloyd’s syndicates, the balance of reserve movements has improved the overall result.  For 2019, on average for Argenta clients, the forecast result has improved by more than half of one percentage point.  The year, which bears around two thirds of the cost of Covid-19 claims on the market, is still in overall loss but it is encouraging that Covid-19 reserves are robust and the balance of the account is generating a surplus.  There are nonetheless syndicates reporting a worsening of the forecast.  International liability has sustained some large losses, driven by social claims inflation, and both QBE Syndicate 386 and Coverys 1991 have reported a worsening of the estimated outcome on the basis of their underwriting in this area. 

Sixteen syndicates are reporting an improved forecast, with the largest improvements at SPAs 6107 (Beazley) and 6104 (Hiscox).  The latter remains in loss, largely owing to poor catastrophe experience including typhoon losses in Japan.  The former, which writes a combination of cyber and catastrophe exposed business, has improved to a meaningful profit, albeit the range of outcomes remains wide.  Beazley Syndicate 623 has also improved, with the revised range symmetrical around breakeven.

We will review the underlying data over the coming weeks, and will speak in more detail about developments on the open years at next month’s round of client meetings, but past experience is that actual results are better than the tenth quarter estimates.  There are some unusual features this year, including the Covid-19 reserving, and a low interest but potentially volatile investment market, but we would nonetheless expect this trend to continue.

The 2020 account has improved slightly, which is encouraging at this stage of its progression.  The 2020 underwriting year remains on risk for much of the rest of the 2021 calendar year, in particular for direct business and for business written under delegated authority.

Under Lloyd’s year of accounting protocols, business is assigned to the underwriting year in which the policy incepts.  So a risk written on say 1 November 2020 will remain on risk until the end of October this year, potentially exposing property risks to windstorm losses in the 2021 hurricane season.  This can be exacerbated by risks written under delegated authority as all business written will be signed back to the original inception of the authority.  Here, a binding authority granted on 1 November 2020 may still be attaching new and renewal business with twelve month policy periods throughout 2021, with potentially the last declarations still on risk until 2022.  Lloyd’s syndicates have tended to increase the proportion of business written under delegated authority over time.  Having business on risk means that managing agents are cautious in the early estimates for the open years. 

The underwriting environment improved throughout 2020, with business written at the end of the year often on substantially better terms than that written in the first part of the year.  We believe that the forecasts are conservative at this stage and that the year will mature into a small but nonetheless worthwhile profit in time. 

Many of the current forecast still straddle a breakeven, with a loss at the worst end and a profit at the best end of the range.  There is exposure to the freezing weather that struck Texas in February of this year in the 2020 account, and a number of the catastrophe exposed syndicates including Beat 4242, MAP SPA 6103 and Beazley SPA 6107 are reporting a worse position.  Conversely, there are a good number of syndicates where the forecast has improved in the most recent quarter, lead by the perennial outperformer, the Chaucer managed nuclear Syndicate 1176, and a welcome return to profit for the property specialist Cincinnati 318.

The 2020 year has some way to go, and the ultimate outcome will be determined by loss experience in the remainder of this year.  Around 25% of the overall market exposure to Covid-19 related claims is in the 2020 account and the comments on the potential for volatility in investment returns made for 2019 are equally as valid for 2020. 

The underwriting conditions for the 2021 year of account are as good as they have been for at least a decade, with many underwriters reporting rate increases which are running ahead of business planning expectations.  The compounding effect of three or four consecutive years of rate improvement has increased rate adequacy across the market.  Strengthening of sterling over the past twelve months has loosened some capacity constraints, so fewer syndicates than might otherwise be expected are looking to expand their capacity for 2022.

The complete listing of syndicate forecasts for the 2019 and 2020 years of account is here