Syndicate Research Limited (SRL) has downgraded the B (Average), under review for possible downgrade, Continuity Opinion of Argo Group-backed Lloyd’s Syndicate 1200.
SRL, which provides research on all trading syndicates operating in the Lloyd’s market, says this decision was driven in part by the announcement of the syndicate’s 2019 annual results and additional deterioration on its 2018 open year account forecast since then.
The outlook for the Continuity Opinion is negative, reflecting both SRL’s concerns over the potential for the syndicate to be affected by changes at group level and its concerns over the potential for an additional material annual loss at the syndicate.
Syndicate 1200’s B- (Below Average), negative outlook, Continuity Opinion reflects SRL’s view of relative performance and continuity prospects for the syndicate over the insurance cycle.
Syndicate 1200 writes a Non-Marine Property Casualty orientated book with a 2020 capacity of £450 million and in 2019 wrote circa 19% of Argo Group’s Net Premiums Written.
It recorded a loss of 7% of Net Premium Earned on an annually accounted basis for 2019 on a combined ratio of 109%, including a reserve deterioration of 9% NPE (7% of reserves).
SRL commented that, in terms of reported results, on a cross-cycle basis syndicate 1200 had recorded an average loss of 2% of NPE for 2011 to 2019 under annual accounting and more recent 5-year average losses of 7% NPE.
The syndicate had performed in line with the top of B- (Below Average) benchmarks in terms of indicative average annual returns on capital on a cross-cycle basis with more recent 5-year average returns in line with the top of C+ (Below Average) benchmarks.
In terms of three-year accounting, SRL said the syndicate had recorded a loss of 22% capacity for 2017.
The syndicate’s latest forecasts at Q1 2020 were for a mid-point loss of 10% capacity for the 2018 account and a loss of 2% of capacity for 2019.
The syndicate’s 2017 loss of 22% compared to a mid-point forecast loss of 13% capacity at Q3 2019; the current forecast loss of 10% for 2018 compared to a forecast profit of 1% capacity at Q3 2019 and a loss of 5% capacity at Q4 2019.
SRL noted that two of the main rating agencies had placed the group’s operating entities financial strength ratings on negative outlook.
Full Year losses from the group’s International Operations in 2019 were $137 million compared to a profit of $139 million in its US Operations.
SRL stated that its current expectation was for a further material annual loss for syndicate 1200 for 2020 and that cross-cycle performance was likely to be in line with lower B- (s) benchmarks, with more recent 5- year average performance likely to be in line with C+ (s) benchmarks, when the 2020 annual results are reported.
SRL noted the recent realignment of the book, with underperforming business placed into run-off and remedial action being taken on certain lines, and the appointment of both a new active underwriter and a new class underwriter for Property, together with improvements in underwriting conditions on the retained book.