Reserve hikes mar an otherwise profitable 2023 for Lloyd's managing agents

Reserve additions pushed the combined ratios of two Lloyd's of London managing agent groups above the 100% break-even point in 2023.

Liberty Managing Agency Ltd. reported the highest managing agent group combined ratio, at 106.7%, driven by the performance of its sole syndicate, Lloyd's Syndicate 4472. That compares with a marginally profitable combined ratio of 99.3% in 2022.

Syndicate 4472's attritional loss ratio actually improved by 3.5 percentage points and its catastrophe loss ratio declined 12.4 percentage points in 2023, despite the company paying out net amounts of £72.1 million for earthquakes in Turkey, £42.7 million for Cyclone Gabrielle in New Zealand and £30.8 million for flooding in Auckland, New Zealand.

That improvement was offset by reserve strengthening for prior years due to claim development and "allowance for the uncertain risk environment," according to the syndicate's accounts.

The syndicate did not give further detail on the reserve additions but in its accounts said it was continuing to monitor the effects of inflation and the uncertainty around loss reserves for the Russia-Ukraine war. Liberty did not respond to a request for comment.

Forever chemicals, sports injuries

Similarly, SA Meacock & Co. Ltd.'s 100.8% combined ratio for 2023, derived from Lloyd's Syndicate 727, was largely caused by reserve strengthening for 2021 and prior years of account, according to the syndicate's accounts. The syndicate reported a combined ratio of 86.5% in 2022.

The reserve margin above actuarial best estimates for 2021 and prior years increased by £4.3 million and by £700,000 for 2022 at constant sterling/dollar exchange rates. SA Meacock attributed the strengthening of 2021 and prior reserves to its increasing awareness of damage and injury caused by per- and polyfluoroalkyl substances (PFAS), also known as forever chemicals. The largest part of the margin is for the risk of latent claims emerging, for which the syndicate has not yet received significant notifications.

SA Meacock also identified the potential for liability claims to arise from brain damage sustained in certain sporting activities. To date, it has reserved for ultimate losses and costs of $49.7 million and has so far paid defense costs of $3 million. The overall reserve level has "a significant margin" to absorb losses and the potential for claims development on policies decades after they have expired, the accounts said.

The managing agent declined to comment beyond the details in its accounts.

Catastrophe containment

All other managing agents reported combined ratios below 100%, in what was a profitable underwriting year for Lloyd's overall. In 2023, there were fewer managing agent groups with combined ratios in excess of 100% than in 2022.

Some of the improvement was due to lower natural catastrophe losses. Unlike 2022, which was hit by Hurricane Ian, losses from North Atlantic hurricanes were limited in 2023. Also, reinsurers raised prices and attachment points for catastrophe cover, limiting losses from smaller events.

The lowest combined ratio at managing agent group level, 46.2%, was reported by Ariel Re Managing Agency Ltd., owned by Ariel Re Ltd. The main driver of the result was Ariel's principal syndicate, Lloyd's Syndicate 1910, which reported a combined ratio of 47.6%.

Syndicate 1910's main exposure is property reinsurance. It said landfall of North Atlantic hurricanes in populated areas was limited in the year, and increased retention of risk by primary insurers and a reduction in aggregate exposure on policies exposed to convective storms lowered its incurred losses. The syndicate also said its "narrowly defined risk appetite" meant limited impact from "material" insured losses caused by wind, flood, hail and earthquake events outside the US.

Even so, the combined ratio of Ariel Re's Lloyd's operations in 2023 was on the low side.

"Our Lloyd's business plans for 2024 show a modelled net combined ratio of circa 80%, which is consistent with the average of the syndicate's long-term performance," Ariel Re said in an emailed statement.

The 65.3% combined ratio for Markel Group Inc.'s Lloyd's operations was also partly thanks to lower natural catastrophe losses in 2023. Markel owns two managing agencies at Lloyd's: Markel Syndicate Management Ltd., which manages Lloyd's Syndicate 3000, and Nephila Syndicate Management Ltd., backed by insurance-linked securities investors, which runs Lloyd's Syndicate 2357 and Lloyd's Syndicate 2358.

The 25.5% combined ratio reported by Nephila Syndicate Management's Syndicate 2357 in 2023, down from 57.5% in 2022, resulted from a lower level of catastrophe claims. The syndicate does not write much aggregate cover or much business in the US Midwest and so avoided losses from severe convective storms.

Growing and shrinking

Lloyd's has improved its profitability and continued to grow gross written premium, though more slowly than expected. Gross written premiums across the market were up 11.6% year over year to £52.1 billion, less than the projected £56 billion.

Sirius International Managing Agency Ltd. reported the largest year-over-year percentage premium increase of 45.7%. The agency's sole syndicate, Lloyd's Syndicate 1945, is a "key part" of parent group SiriusPoint Ltd.'s international growth plan, Rob Gibbs, president and CEO of SiriusPoint International, said in an emailed statement.

In the past 12 months, growth in the London market has included a capacity increase, hires, a new marine insurance line and new distribution partnerships with underwriting agencies and consortia, all of which have had "a significant impact on our numbers, and has made a real difference to our position in the market," Gibbs said.

Some managing agent groups did see gross written premiums shrink year over year. RenaissanceRe Syndicate Management Ltd. recorded the largest percentage drop, at 14.2%. The managing agent's Lloyd's Syndicate 1458 said the decrease was mainly in certain casualty classes, which was "reflective of current market conditions," as well as a planned reduction in its property catastrophe book.

The drop comes against a background of falling prices for public company directors' and officers' liability insurance, which has prompted some insurers to curtail their underwriting, and declining demand for transaction liability cover because of muted M&A activity.

Although RenaissanceRe Syndicate Management registered the largest fall in gross written premiums, it was also one of the most profitable underwriters at Lloyd's in 2023, with a combined ratio of 73.8%.