American Financial Group, Inc. has announced that it is pulling out of underwriting in the Lloyd’s marketplace, with its Neon business there set to go into run-off.
American Financial Group (AFG) said that it plans to exit the Lloyd’s of London insurance market in 2020.
To achieve this, the company said that it has begun actions to place its Lloyd’s subsidiaries including its Lloyd’s Managing Agency, Neon Underwriting Ltd., into run-off.
AFG said it will work with Neon and it’s regulators to make sure the company continues to meet its obligations to policyholders and that it achieves an orderly run-off of its insurance and reinsurance operations.
AFG’s Neon underwriting operation had already pulled back from all of its treaty reinsurance business at the end of 2019, as it shuttered its Bermuda operations as well.
The company cited a lack of sustainable and appropriate returns from that business, saying at the time that it would re-focus its Global Property and Property Binders business in London.
Now it seems that this re-focus hasn’t worked, or has been deemed as not a worthwhile endeavour, as the company is now shuttering the Lloyd’s operations as well.
AFG said that by exiting this business it can now reallocate this capital to its other insurance businesses and opportunities that can generate and meet its targeted returns on investment.
Scathingly, the company said that both Neon and its predecessor Marketform did not meet AFG’s profitability objectives since AFG’s purchase of Marketform in 2008.
Having reviewed Neon’s expected results for 2019, as well as its 2020 prospects, AFG said it has determined that Neon will not meet its return expectations.
Neon accounted for roughly 7% of AFG’s property and casualty net written premiums in 2019.
AFG said that it anticipates taking a non-core after-tax charge in the region of $50 million to $60 million in the fourth quarter of 2019 to pay for Neon reserve strengthening and expenses related to the exit costs associated with the run-off of this business.
So the demise of the Neon business appears set, as it heads into run-off allowing AFG to focus on more profitable opportunities.
It’s another sign that underwriting businesses need to have efficiency, or scale, reach and diversification, if they are to generate sustainable returns that investors will be happy with over the cycle.
Performance issues have dogged Neon since the days of Marketform and unfortunately the business has never been able to shake that off, resulting in a difficult end for the firm.