Syndicate forecasts as at 30 June 2019
Lloyd’s has today released updated forecasts for the 2017 and 2018 underwriting years as at 30 June 2019. The full schedule can be found here.
There has been an overall improvement in the 2017 account. Despite this, the forecast result continues to be a loss, even at the best end of the range. This underwriting year bore the majority of the cost of claims arising out of hurricanes Harvey, Irma and Maria which hit the USA and the Caribbean in September and October of 2017 and coincided with fiercely competitive market conditions.
Managing agents have now begun to include movements on closed years of account, and these have generally improved the overall result. Our expectation is that the contribution of old years will increase in the coming months and that, while the year will close at a loss overall, the final number will be a smaller loss than currently indicated. However, greater than usual volatility in foreign exchange and investment markets means that there are risks here too and further movements in the £/US$ rate of exchange could reverse some underwriting gains. The forecasts use the 30 June rate of exchange of US$1.27:£1, although the pound has recently been trading at $1.21, which would increase the sterling cost of claims incurred in the USA.
Twelve syndicates improved their forecast for 2017, and ten that have reported deterioration. The largest improvement was at Chaucer nuclear syndicate 1176 , where the forecast profit at midpoint now exceeds 50% of capacity. Loss impacted Cincinnati Syndicate 318 improved its forecast by 4.5 percentage points, although at 32.7% of capacity even the revised figure is a significant loss for syndicate members.
The forecasts for 2018 are also for another year of loss. Most Argenta advised members will have a range that does include a small profit at the upper end. The year was impacted by a series of natural catastrophes, including hurricanes Florence and Michael, typhoon Jebi and an outbreak of wildfires in California. Managing agents will include provision in their forecasts for catastrophe losses occurring in the remainder of 2019 which impact policies with an inception date during 2018. The final result will therefore depend on catastrophe activity during the rest of this year, with the bulk of the hurricane season still ahead of us.
The 2018 forecasts do not include any expectation of movement on the closed years of account at this stage. Again, we would anticipate the well reserved syndicates that make up the lion’s share of Argenta portfolios to improve their forecasts over the next 18 months as reserve releases become apparent and an overall breakeven is possible by the time the 2018 account closes at the end of 2020. The caveats attaching to rates of exchange and investment performance mentioned for the 2017 year of account apply at least equally and possibly even more to the 2018 year.
Six syndicates have improved their 2018 forecasts, with the largest improvement being at Apollo Re, SPA 6133, followed by TMK Syndicate 557, as their estimates of the costs of catastrophes have improved in the quarter. There is also a meaningful improvement for QBE Syndicate 386 in the light of improving overall loss experience. While the two first mentioned syndicates are still forecasting an overall loss, the latter shows a movement into healthy profit.
Twelve syndicates have worsened their midpoint forecast. The most disappointing change in forecast relates to SPA 6111, underwritten by Catlin, which has moved from a forecast profit of more than 7% of capacity to a loss approaching 6% (both midpoint numbers). We were sceptical of the original forecast, given the performance of the host syndicate 2003 in 2018. No third party members participate in the very small Coverys syndicate 3330 which is reporting a forecast loss of 140% with an adverse quarter on quarter movement of almost 70 percentage points. Hiscox SPA 6104 has been heavily impacted by increased losses arising out of typhoon Jebi and has increased its forecast loss to 60% of capacity at midpoint.
There is no requirement to make forecasts for the 2019 year of account at this stage, and of course, this year is heavily on risk as we head into the Atlantic hurricane season. Almost all underwriters are reporting overall improvements in the rating levels they are seeing across their books as lines of business and competitors begin to respond to the poor results in the insurance and reinsurance sector over the past two years. More commentary on the current market conditions can be found in the recent Argenta Market News here.
Lloyd’s will report the results for the market (on a GAAP basis) in the first half year on 18 September.