November 2019
After the closure of three Lloyd’s syndicates since the start of the month – Vibe 5678, Pioneer 1980, and Acappella 2014 – there are plenty of reasons to feel bearish about smaller Lloyd’s players.
These three syndicates suffered from a toxic cocktail of access-to-business problems reflecting poor competitive positioning, soft market growth and cost issues brought to bear by Lloyd’s expenses, their lack of scale and the Corporation’s cap on growth.
As if that wasn’t enough, there are structural shifts that make the future look bleak for small players: the move towards passive following capacity and the pending changes to the Lloyd’s lead-follow structure.
With all of this bearing down on them, it is not surprising that the three syndicates suffered from persistently weak underwriting performance, and that they were not perceived by capital providers as a good short- or long-term bet.
Some believe we are witnessing the dying days of small syndicates.
But despite the closure of these three players, other syndicates faced similar challenges and yet managed to secure capital for another year.
Dale Underwriting Partners kept ProAssurance on board with a reduced line, and was able to add three new trade capital backers.
Probitas secured capital backing for 20 percent pre-emption, while Apollo, Agora, Verto and DTW 1991 were finalising their Funds at Lloyd’s as of last week.
Securing capital for 2020, of course, does not mean all those structural pressures and tough market conditions vanish overnight. It is, however, a sign that the situation is more nuanced than the “big is beautiful” cheerleaders may suggest.
Perhaps it is not impossible for small syndicates to survive. There are other syndicates out there that do good business without the advantages that scale brings, with MAP, Ark and Atrium all consistently among the best performers in Lloyd’s.
On the flip-side, there are larger businesses for whom it has not all been plain sailing.
MS Amlin was in September obliged to shut down nine lines of business as part of a fresh round of remediation work. The firm’s Lloyd’s syndicate has not made an underwriting profit since 2015.
Similarly, Axa XL’s flagship Syndicate 2003, which wrote $3bn in gross premium in 2018, booked a loss $302mn last year – larger than the prior year’s loss of $259.2mn – and reported a combined ratio of 115.6 percent.
The challenges faced by these businesses show that scale isn’t everything.
A loss ratio problem is a loss ratio problem if you wrote £250mn or £2.5bn.
And conversely, a business with good risk selection, intelligent portfolio construction and well designed outwards protections, should be able to continue to outperform on the loss ratio.
It may be harder than it used to be and it may continue to get harder. But it’s just possible that the best entrepreneurial businesses will continue to thrive at Lloyd’s.
In Brief
IG offers 5% rate rise as it switches to two-year deal
The International Group has offered 5 percent increases on the key layers of its programme, as it seeks to move the entire $3bn open market placement to a two-year deal, The Insurance Insider revealed.
The IG has also notified the market that it expects the Golden Ray claim to come in as low as $115mn, while the Maersk Honam also experienced sizeable loss development within the most recent policy period. Against the backdrop of a turning marine market, and with fears of creep on the Golden Ray, (re)insurers have given a lukewarm reception to the deal, which incepts on 20 February 2020, particularly given the attempt to lock down two years of capacity.
Swiss Re reports ‘strong’ corporate solutions pricing momentum
Swiss Re said pricing momentum in its corporate solutions unit remains strong, with the greatest growth in loss-affected property lines, after the division achieved 10 percent rate growth in the year to date.
In an investor presentation the reinsurer said it has cut $60mn of operating costs from its corporate solutions unit so far this year as it restructures the division to achieve a combined ratio to 98 percent by 2021, down from 110 percent in 2018. It is focusing on “de-commoditising” the corporate solutions business it writes, while growing its exposure in large property transactions, credit and surety, and accident and health. In the presentation Swiss Re also said it expects a casualty reinsurance combined ratio of 97 percent this year, down 1 point year on year, after cutting back in US liability and US commercial motor.
Munich Re exposed to Chile riot claims through Suramericana treaty
Munich Re is among reinsurers facing riot losses in Chile due to a property treaty it leads for one of Latin America’s largest insurers, The Insurance Insider reported.
Suramericana is facing at least $150mn in claims from civil unrest in Chile over the past six weeks, the company has confirmed. A representative from Suramericana said the company is continuing to monitor the situation. Munich Re owns an 18.9 percent stake in Suramericana, with the rest of the equity held by Colombian financial services business Grupo Sura.
DTW Syndicate 1991 inches closer to 2020 capital deal
DTW Syndicate 1991 is in the final stages of securing capital for the 2020 underwriting year with around a week to go until the coming-into-line deadline, The Insurance Insider reported.
Sources told this publication the Coverys-managed syndicate had secured business plan approval from Lloyd’s with a circa 10 percent reduction in top line, and the details are now being finalised on the capital arrangements after a challenging renewal. In a statement, Coverys confirmed DTW 1991 was in the process of finalising its 2020 underwriting capacity arrangements ahead of the 29 November deadline and said it is “grateful for the support of our capital providers and are confident in delivering on the syndicate’s 2020 plan”.
CAC Specialty launches environmental liability group
Cobbs Allen arm CAC Specialty has appointed a trio of brokers and established an environmental liability division.
The operation will be led by Gregory Schilz who joins the business from Marsh JLT’s San Francisco office, where he was an executive vice president. Grant Nichols and Brian Lu also join from Marsh JLT and become vice presidents at the new division. Nichols is based in Miami while Lu works from New York.
