Syndicate Research Limited (SRL) has recently placed the B+ (Above Average) Continuity Opinion of Lloyd’s syndicate 557 (Tokio Marine Kiln Syndicates Limited) under review for possible downgrade, following the syndicate’s active underwriter leaving the business and confirmation that a review was being undertaken of the syndicates account.
The syndicate, backed entirely by third party capital and with a 2022 capacity of £41 million, writes a specialist catastrophe account. It’s business is written as a Quota Share of Tokio Marine Kiln (TMK) syndicate 510’s catastrophe RI account and with policyholders’ relationships being with syndicate 510.
Will Curran – active underwriter since April 2019, and previously deputy since 2008 has recently left the business, with International book underwriter Jeremy Walker currently taking over the role of interim TMK Department Head for Reinsurance, and TMK Chief Underwriting Officer, Matthew Shaw as interim active underwriter.
TMK has recently confirmed that a review is being undertaken of the syndicate’s account to place it on a more stable and profitable footing.
Syndicate 557 recorded a loss of 4% of Net Premium Earned (NPE) on an annually accounted basis for 2021 on a combined ratio of 103%.
In addition, the loss benefited from a release of 11% NPE from reserves (9-year average release 22%), and was affected by a breakeven investment return (9-year average +3% NPE). The syndicate confirmed in its 2021 Annual Report that it did not expect any losses due to the conflict in Ukraine to materially impact its financial position.
SRL stated that, in terms of reported results, on a cross-cycle basis syndicate 557 had recorded average profits of 24% of NPE for 2013 – 2021 under annual accounting and more recent 5-year average annual profits of 2% NPE.
SRL also noted that the syndicate had performed in line with B+ (Above Average) benchmarks in terms of indicative average annual returns on capital on a cross-cycle basis based on third party spread capital ratios, but more recent 5-year average returns had been in line with borderline B- (Below Average) / B (Average) benchmarks.
SRL commented, that the syndicate was considered to have an established, core book and that it benefited from TMK syndicate 510’s franchise as one of the largest syndicates in the Lloyd’s market.
Continuing further, SRL stated that although syndicate 557’s book only represented 1.5% of TMK’s combined 2021 GPW, the Catastrophe RI book represented a more material 7% of syndicate 510’s overall account.
With above average returns on a cross-cycle basis, but more limited returns over the past five years and the Cat RI book remaining a material element of syndicate 510’s account, SRL stated that it believed that TMK remained committed to the book.
SRL commented, that its expectation was for a material realignment of the account following the review, but that continuity for policyholders dealing with the reinsurance team within syndicate 510 would likely remain “above average”, or “potentially average” over the longer term.
However, SRL noted, that given the departure of the syndicate’s active underwriter and the expectation of a material alignment of the account, it might be more appropriate for the Continuity Opinion to be positioned at B (Average) while the account was realigned.
