Lloyd’s managing agent Argenta has broken down the forecast results for the 2020 and 2021 years of account released by Lloyd’s for all syndicates supported by third party capital, together with an aggregate position for those syndicates with an aligned capital base.
As at June 30th, 2022, Argenta notes that 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, while increasing inflation has prompted central banks to increase interest rates.
When interest rates go up, the market value of bonds go down and the syndicate investments are marked to market, and the impact is felt to be undermining an evident improvement in underwriting conditions.
However, the corollary to the market losses in the 2020 year of account is the expectation that the syndicate funds will generate greater returns on the 2021 year, which 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,” Argenta stated. “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.”
For the 2021 year of account forecasts continue to be profitable, although the account contains the syndicate exposures arising out of the Russian invasion of Ukraine.
In particular, the potential exposures to stranded aircraft remains a complicated issue, with exposures potentially falling to a range of policies, or equally possibly, none at all.