Syndicate Estimates as at 30 June 2018
Lloyd’s has released syndicate forecasts for the 2016 and 2017 accounts based on data to the end of June 2018.
The overall market has deteriorated for the 2016 year of account, with the aggregate forecast for the Lloyd’s market moving further into loss at 3.9% of capacity at midpoint. The aggregate forecast for the market as at 31 March 2018 was a loss of 3.5% (again at midpoint).
Although the market is in overall loss for the 2016 account, syndicates backed by clients of Argenta Private Capital Limited have fared better and the aggregate portfolio of our clients has improved in the quarter to show a profit before members’ agents’ fees and charges of 0.67% of capacity at midpoint. The mid-range forecast result at 31 March 2018 was a profit of just 0.03% of capacity.
Managing agents begin to assess the likely performance of closed years of account at the six month stage, and we expect that part of the improvement will be due to projected releases from the 2015 and prior years when the 2016 account closes at the end of this year. Although the prospects for investment income are improving with increases in interest rates on both sides of the Atlantic, the benefits can be delayed as bond portfolios lose value when interest rates go up.
Amongst syndicates supported by Argenta, fourteen have improved their forecast for the 2016 account, with Nuclear Syndicate 1176 (up 12.5 points) and Hiscox SPA 6104 (up 10 points) standing out. Five syndicates have reduced their forecast, with the most significant being Catlin SPA 6111. This has moved out from a midpoint loss of 1.24% of capacity to a midpoint loss of 4.17%. The forecast for this year of account has been reduced for five consecutive quarters. We will be reporting further on developments at this syndicate in the next few weeks.
The 2017 account has also deteriorated for the Lloyd’s market overall, but improved slightly for Argenta clients.
For Argenta clients, the forecast result has improved by 0.28 percent of capacity to a midpoint loss (before members’ agents’ fees and charges) of 8.01%.
The Lloyd’s market average has deteriorated by 1.3 percentage points to a midpoint loss of 9.3% of capacity.
Reinsurance business is typically written with a renewal date on or before 1 July each year and has therefore run-off by 30 June the following year. Direct business, in particular that written under binding authorities, continues to be on risk for much of the second twelve months of each year of account (i.e months 12 to 24 of the 36 month underwriting year of account).
Managing agents will continue to hold catastrophe reserves for these risks until the end of the year. In recent years, the proportion of reinsurance business has fallen at the expense of an increase in direct business. If we reach the end of 2018 without major catastrophe loss, we can expect some improvement in the forecast for the 2017 year of account. 2017 was of course impacted by a particularly severe series of natural catastrophes in the second half, including Hurricanes Harvey, Irma and Maria, earthquakes in Mexico and wildfires in California. Although attritional loss ratios and investment income have a bearing on the forecasts, in many cases it is movements in the estimated costs of these events that is currently driving the forecasts.
Ignoring small improvements of less than 0.3% of capacity, there are ten syndicates with an improved forecast result for 2017. Catastrophe Reinsurance Syndicate 557 (TMK) and SPAs 6104 and 6107 (Hiscox and Beazley) are all better by at least 5 percentage points, although all remain in loss. Hiscox Syndicate 33 is now a midpoint loss of 5 percentage points and there are also improvements at ERS (motor) Syndicate 218 and QBE (liability) Syndicate 386.
Excluding marginal movements of 0.2% of capacity or less, five syndicates have a worse forecast result for 2017 at 30 June than at 31 March. Once again, the most disappointing is Catlin SPA 6111 which has deteriorated by 13.5 points to a midpoint loss of 28.2% of capacity.
We will be sending individual forecasts to all members in the next few days.
Managing agents are next required to submit forecasts for the 2016 and 2017 years of account based on data at the end of September. These will be released to members on 14 November 2018. Initial forecasts on the 2018 year of account are not released until the year has reached the 15 month stage.
The full listing of syndicate forecasts is available here.