Advent syndicate gets downgraded due to Brit transfer deal

Syndicate Research (SRL) has downgraded the B-^ (Below Average), stable outlook, Continuity Opinion of Lloyd's syndicate 780 (Advent Underwriting) to C+^ (Below Average).

The move follows the announcement that Advent is working with Brit to consider which parts of the business can be transferred to Brit, as well as building plans to run off the remainder of the portfolio.

The downgrade reflects SRL’s view of the potential impact of the proposal on the syndicate’s 2018 account results and on continuity of relationships for policyholders with the current underwriting team at syndicate 780. The Continuity Opinion remains under review for further possible downgrade.

Advent syndicate 780 is 84.5 percent backed by Fairfax Financial Holdings and 15.5 percent by capital quota share reinsurers for 2018, with a 2018 capacity of £200 million, and writes a non-marine orientated account.

Brit syndicate 2987, into which parts of s.780’s business may be transferred, is ultimately 72.5 percent backed by Fairfax Financial Holdings Limited and 27.5 percent by Ontario Municipal Employees Retirement System, with a 2018 capacity of £1.4 billion and writes a composite book of business.

Syndicate 780 recorded a loss, excluding investment returns on Funds at Lloyd’s deposited at the syndicate level (FIS), of 27 percent of net premium earned (NPE) on an annually accounted basis for 2017 on a combined ratio of 128 percent (including forex). This compared to a market average loss excluding FIS of 20 percent of NPE for 2017. SRL stated that, in terms of reported results, on a cross-cycle basis syndicate 780 had recorded average losses excluding FIS of 6 percent of NPE for 2009 to 2017 under annual accounting.

The syndicate’s account had been realigned from 2012, with a new agency CEO being appointed in 2013 and a new underwriter for 2014, but has faced the issue of turning the book around in a very competitive market. SRL stated that, with the 2018 account likely to be the final trading year for the syndicate, there is the potential for additional reinsurance costs to protect the run-off of business written and for a risk premium to be applied to reserves on the closure of the account to affect the 2018 account result.

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