Movements in reserves played a critical role in determining the underwriting results of the best- and worst-performing managing agents at Lloyd's of London in 2021.
French insurance group AXA SA's AXA XL Underwriting Agencies Ltd. had the best underwriting result of 2021 with a combined ratio of 74.4%. This was mainly driven by the 74.6% combined ratio reported by the agent's flagship Syndicate 2003.
Reserve releases of £230 million shaved 23.8 percentage points from Syndicate 2003's combined ratio. The releases were from reserves the syndicate had set aside for COVID-19-related and prior-year natural catastrophe claims. Without this help, the syndicate would have still turned in a profitable 98.4% ratio. The syndicate's underwriting results also benefited from lower natural catastrophe losses in 2021, according to its accounts, and the efforts taken in 2020 and 2021 to exit unprofitable business, which are now complete.
AXA XL's managing agent also reported the biggest reduction in gross written premiums in the market as a result of the remedial work on its portfolio.
The positive result follows a four-year run of underwriting losses at Syndicate 2003.
Reserve hit
One Lloyd's managing agent that continued its streak of underwriting losses was Aspen Insurance Holdings Ltd.'s Aspen Managing Agency Ltd., whose sole syndicate, Syndicate 4711, reported a 2021 combined ratio of 117.4%. There were individual syndicates that reported higher combined ratios than Syndicate 4711 in 2021, but Aspen's was the highest at managing agency group level.
Syndicate 4711's £34.3 million loss for the year reflected an increase in current and prior year reserves in its financial and professional lines segment, according to its accounts. The company added £30 million to its net reserve margins, which it said related largely to uncertainty in the financial and professional lines business. The £30 million strengthening is 15.1% of the syndicate's 2021 net earned premium of £199 million, indicating it would have reported a combined ratio of 102.2% had the strengthening not occurred.
The syndicate has not made an underwriting profit since 2016, at a time when Lloyd's management's patience with serially loss-making syndicates, particularly in the current favorable pricing environment, is wearing thin.
However, the 2021 combined ratio is nearly 35 percentage points lower than the 152.2% it reported in 2020. Aspen said in an emailed statement that it was "encouraged" by the improvement in performance, which was achieved in the fourth-costliest natural catastrophe year on record for the global insurance industry.
The company also said that it was committed to building its Lloyd's platform, and that Lloyd's has approved its plan to grow the syndicate "significantly" in 2022, enabling a capacity increase to more than £800 million. This was driven mainly by Aspen's decision to move a portfolio of business from its U.K. insurance company to its Lloyd's operation.
The company said Lloyd's approval of its plan is "a strong endorsement for our business across all our functions, and our London Market strategy." Syndicate 4711's accounts show that its capacity increased to £900 million for 2022 from £725 million in 2021.
The business transfer made Aspen Managing Agency the second-fastest-growing managing agent in Lloyd's in 2021, with a 41.4% increase in gross written premium.
Distorting effects
The fastest-growing managing agent in 2021 was Inigo Ltd.'s Inigo Managing Agent Ltd., whose Syndicate 1301 more than doubled its gross written premium. Syndicate 1301 started anew in 2021 after Inigo acquired it and its managing agent from Enstar Group Ltd. Although the accounts are a combination of 2021 and older years, liabilities for 2020 and earlier remain with the former owner. The growth reflects the syndicate's new strategy and portfolio since the takeover.
The fresh start also meant that Inigo was the second-least profitable managing agent at Lloyd's in 2021 with a combined ratio of 114.1%. The company said in its earnings announcement that while it expected the 2021 underwriting year to make a "healthy profit," the loss reported under generally accepted accounting principles was caused by "fast growth, no premium from previous underwriting years earning through and some conservative initial reserving loss ratios."
Lloyd's as a whole continues its efforts to bring its cost ratio more in line with its peers in the global insurance market, and reduced it to 35.5% in 2021. Against this backdrop, Coverys Managing Agency Ltd.'s 80.7% ratio and Canopius Managing Agents Ltd.'s 71.9% stand out. However, both ratios were distorted by loss portfolio transfer transactions. Excluding these transactions, the ratios would have been 35% and 41.1%, respectively. Canopius said in an emailed statement that the loss portfolio transfer improved Syndicate 4444's combined ratio by 1.7 percentage points because of the reduction in earned premium and corresponding claims.
