Syndicate forecasts as at 30 June 2022
Lloyd’s has released forecast results for the 2020 and 2021 years of account for all syndicates supported by third party capital, together with an aggregate position for those syndicates with an aligned capital base. The forecasts are available here.
2020 year of account
The 2020 year of account continues to be marginal on current forecasts. There are a number of syndicates reporting weakening investment returns for the 2020 underwriting year. Increasing inflation has prompted central banks to increase interest rates. The vast majority of syndicate investments are in ultra-safe government and corporate bonds, typically with maturity dates of no more than three years. When interest rates go up, the market value of bonds go down and the syndicate investments are marked to market. It is important to note that the investment managers are not taking undue risk, and the overall security of the portfolio is unchanged, the assets held by the syndicates are secure. And it is frustrating that this impact is undermining the evident improvement in underwriting conditions.
The corollary to the market losses we are seeing in the 2020 year of account is the expectation that the syndicate funds will generate greater returns on the 2021 year. These returns will be earned in 2023 calendar year. At present, we see that managing agents have not begun to take this additional returns into account in their forecasts. Of course, it is possible that the cycle of increasing interest rates will continue next year, so there is no certainty to the timing of these improved returns, although of course, in general, increased interest rates are good news for syndicate returns.
2021 year of account
The 2021 year forecasts continue to be profitable, although the account contains the lion’s share of syndicate exposures arising out of the Russian invasion of Ukraine. The vast majority of these losses remain potential losses only, with very little advised to insurers, so most reserves consist of incurred but not reported provisions. Syndicates have also had the opportunity to consider potential exposures to the issue of aircraft leased to Russian operators but owned by Western leasing companies. This remains a complicated set of circumstances, with exposures potentially falling to a range of policies, or equally possibly, none at all. The reserves established here are on a probability weighted basis, but there could be substantial movement in these reserves over time.