Lloyd’s Syndicate 218 outlook negative on concerns over future returns

The outlook for property and speciality re/insurer  IQUW’s  Lloyd’s Syndicate 218 (IQUW Syndicate Management) has been downgraded to negative from stable by Syndicate Research (SRL), citing concerns over the adverse impact from claims inflation on its future returns on capital.

SRL's analysis is based on publicly available information only. IQUW has indicated it disagrees with the research but declined to comment.

Syndicate 218 is a motor syndicate backed 79% by IQUW Holdings Bermuda and 21% by third party capital, which operates within the Lloyd’s of London insurance market. The Syndicate has a 2022 capacity of £480 million.

Syndicate 218’s operation had previously been the subject of a strategic review in 2018. In its latest reported result, syndicate 218 recorded a profit of 2% of Net Premium Earned (NPE) on an annually accounted basis for 2021 on a combined ratio of 99% (excluding fx), as it benefited from reduced road usage in 2020. However, SRL stated that despite that it “retained concerns that claims inflation would negatively impact the syndicate’s returns in the immediate future.”

SRL believes that in contrast to the very competitive motor market that syndicate 218 operates in, “there are significant opportunities in the property casualty market” for IQUW’s syndicate 1856 following recent market losses which has led to a capacity shortage. IQUW had been developing syndicate 1856 (2022 capacity £406 million) since 2020.

“IQUW’s focus was likely to be on syndicate 1856 as opposed to syndicate 218 for the immediate future,” SRL suggested.

Syndicate 218’s B^ (below average), negative outlook, continuity opinion reflects SRL’s view of relative performance and continuity prospects for the syndicate over the insurance cycle.

However, SRL said: “It should be noted that the continuity opinion for syndicate 218 is based solely on public information or limited non-public information and that restricted access to data requested for the continuity opinion may have had a material impact on the assigned continuity opinion.”

SRL stated that its view is based on concerns that syndicate returns will be adversely affected by inflation and over the position of the syndicate within the private equity backed IQUW Holdings Bermuda (IQUW) group.

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