Lloyd’s Novae Syndicates put 'under review for possible downgrade'

Syndicate Research Limited (SRL) placed the B+^ (Above Average) Continuity Opinion of Lloyd's syndicate 2007 (Novae Syndicates Limited) under review for possible downgrade.

The move follows significant changes in the book of business and in light of concerns over the potential for syndicate 2007’s main capital provider’s significant underwriting leverage to affect the ongoing business and continuity of relationships for policyholders, SRL said.

Syndicate 2007 is 86 percent backed by Novae Group with a 2017 capacity of £737 million, and writes a composite account. 100 percent of Novae Group plc’s underwriting is via syndicate 2007.

The syndicate recorded a loss of 3 percent of net premium earned (NPE) on an annually accounted basis for 2016 on a combined ratio of 106 percent (including forex), revised reserving for the Ogden discount rate impacting the result by 8 percent NPE.

SRL stated that, in terms of reported results, on a cross-cycle basis syndicate 2007 had recorded average profits of 10 percent of NPE for 2008 to 2016 under annual accounting, including profits in the catastrophe- affected 2008 and 2011 years. The syndicate had performed in line with the lower end of the B+ (Average) peer group in terms of indicative average annual returns on capital on a cross-cycle basis but more recent 5-year average returns had been more in line with the top end of the B peer group.

Novae Group plc had recently indicated that the performance of classes exited or in run-off meant that the group was unlikely to achieve a combined ratio below 100 percent for the financial year.

SRL commented that there had been significant change in the syndicate’s book of business over the past few years, with some 22 percent of 2015’s planned book of business having since been exited, with continuity for policyholders being affected, and with a further 9 percent transferred to other businesses.

Furthermore, there had been significant growth in the syndicate’s property book in recent years and the syndicate’s underwriter had recently changed, with the previous joint underwriter and CUO being re-appointed underwriter.

SRL continued that Novae Group’s gross underwriting leverage (GPW and gross claims reserves relative to equity) was very significant at 7.1x at 31.12.16 (5.8x 31.12.15), albeit that this included premium written under an arrangement supported by Securis Investment Partners LLC, but that net underwriting leverage (NPW & net claims reserves relative to equity) was still significant at 5.3x. SRL stated that it considered that this level of underwriting leverage exposed Novae to the risk that a major catastrophe event in the current underwriting downturn could constrain its capital position, with the potential for this to affect continuity.

Despite an above average historic record, following significant changes in the book of business and in light of concerns over the syndicate’s main backer’s significant underwriting leverage, SRL has therefore placed syndicate 2007’s B+^ (Above Average) Continuity Opinion under review for possible downgrade.

Today’s stories

Lemonade quickly stealing clients from ‘old insurance companies’, says co-founder

Reinsurance rate reductions accelerate in June renewals: JLT Re

‘More efficiently structured’ ERGO to contribute over $600m to Munich Re profit

Marsh introduces aircraft financing product

Deutsche Rück achieves better rates in German fire/property insurance

Lloyd’s Market Association sets up third party capital committee

Did you enjoy reading this story?  Sign up to our free daily newsletters and get stories like this sent straight to your inbox.