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Exits and cutbacks as Lloyd's of London profit crackdown takes hold

Some of the least profitable syndicates and managing agents at Lloyd's of London are cutting back what they underwrite, and some have even exited the market altogether in response to the market's continuing drive for better performance. But others are finding opportunities to grow.

Lloyd's started its crackdown on unprofitable business and syndicates in 2018, ordering syndicates with three consecutive years of underwriting losses to come up with a remediation plan, and all syndicates to fix or exit the worst-performing 10% of their books. This process led to a flurry of changes as managing agents, which act as holding companies for syndicates, went through the 2019 business planning process toward the end of 2018.

'Protracted challenge'

S&P Global Market Intelligence data shows that the worst performing managing agency from an underwriting perspective in 2018 was Charles Taylor PLC's Charles Taylor Managing Agency, driven by the performance of its sole syndicate, marine mutual The Standard Club's Syndicate 1884. The syndicate reported a combined ratio of 159.6% for 2018.

A combined ratio above 100% denotes an underwriting loss. The collective combined ratio for the entire Lloyd's market was 104.5%, largely because of the natural catastrophes that hit in the second half of 2018.

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It emerged in October 2018 that The Standard Club was exiting Lloyd's. According to the syndicate's annual report, the decision to enter run-off followed a "protracted challenge" in getting approval for its 2019 business plan and the "consequent withdrawal of support" from The Standard Club. When it announced its exit from Lloyd's, The Standard Club said overcapacity and weak pricing had made Lloyd's "a challenging environment for it to develop a profitable underwriting business with sufficient scale."

Syndicate 1884 was one of eight syndicates to stop trading at the end of 2018. One that will be exiting the market in 2019 is Norwegian marine insurer Skuld's Syndicate 1897, one of 12 syndicates and special purpose arrangements managed by Asta Managing Agency Ltd., which was the third-worst performing managing agent with a combined ratio of 133.1%.

Syndicate 1897 said in its annual report that it will cease writing business July 1, 2019, and enter voluntary run-off "following the syndicate planning process for 2019 and the continuing difficult market conditions." The Skuld syndicate alone reported a combined ratio of 121.5% for 2018.

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Others are cutting back rather than exiting entirely. Bermuda-based Hamilton Insurance Group's Hamilton Underwriting Ltd. performed slightly better than Asta after its Syndicate 3334 reported a 2018 combined ratio of 132.6%. The syndicate said in its annual report that it is making a "managed exit" from professional indemnity, which it stopped writing in late 2018, and is also pulling out of the contingency class and business written through Lloyd's China, which it described as "smaller revenue streams."

Syndicate 3334 cut its capacity to £96.2 million and estimated gross written premium to £120 million for 2019, from £120.9 million and £149.5 million, respectively, in 2018.

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Growth opportunities

Not all Lloyd's businesses with high combined ratios are cutting back. Apollo Syndicate Management Ltd. produced a 2018 combined ratio of 132.5% but has boosted its capacity at Lloyd's to £430 million for 2019 from £260 million in 2018. This is largely because of its new syndicate, 1971, set up to reinsure sharing economy-related motor liability risks written by the managing agency's main syndicate, 1969. Syndicate 1971's capacity for 2019, its first year, is £130 million.

Also, several Asta syndicates boosted their capacities, including Beat Syndicate 4242, which upped capacity to £200 million from £130 million, and Nephila Syndicate 2357, which boosted capacity to £391 million from £365.3 million.

At the other end of the underwriting performance spectrum, the best performing managing agent of 2018 was S A Meacock & Co. Ltd., through its Syndicate 727, which reported a 2018 combined ratio of 89.8%.

The next best performer was U.S. insurance group Chubb Ltd.'s Lloyd's managing agency, Chubb Underwriting Agencies Ltd. The agency manages Syndicate 1882 and Syndicate 2488, although 1882 was excluded from the study as it stopped writing business at the end of 2016. Its liabilities were transferred to its sister syndicate Jan. 1, 2019, following the transfer of the renewal rights in October 2016. Syndicate 2488 therefore drove Chubb's Lloyd's performance, producing a combined ratio of 90.3%.

The syndicate said in its annual report that its underwriting result had benefited from prior-year reserve releases of £21 million and "some improvement" in underlying accident year losses thanks to the portfolio review work it has conducted.

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