Markel Lloyd’s Syndicate downgraded due to reduced profitability

Markel syndicate 3000, which operates within the  Lloyd’s of London insurance market, has been downgraded by Syndicate Research Limited (SRL) due to financial underperformance.

The agency has downgraded the B+^ continuity opinion of the syndicate to B^ in light of reduced profitability in recent years and the expectation of reducing investment returns that it says have historically underpinned its results.

The action reflects SRL’s view of relative performance and continuity prospects for the syndicate over the insurance cycle. The outlook for the continuity opinion is stable.

Backed by specialist insurer Markel Corporation, Syndicate 3000 writes a composite account with a 2021 capacity of £475 million. The syndicate is run as a joint operation alongside Markel International Insurance Company and Markel International SE as Markel International.

Syndicate 3000 recorded a loss of 25 percent of Net Premium Earned (NPE) on an annually accounted basis for 2020 on a combined ratio of 131 percent. The loss included losses related to COVID-19 of 33 percent NPE but benefited from a prior year release of 7 percent of NPE and an investment return of 7 percent of NPE.

SRL stated that, in terms of reported results, on a cross-cycle basis syndicate 3000 had recorded average profits of 2 percent of NPE for 2012 to 2020 under annual accounting. The syndicate had performed in line with the B (Average) peer group in terms of indicative average annual returns on capital on a cross-cycle basis.

The syndicate’s cross-cycle results had benefited from significant investment returns and prior year releases, based on a prudent reserving strategy, with average investment returns of 6 percent of NPE and average prior year releases of 9 percent  NPE for the period 2012 to 2020.

SRL commented that syndicate 3000’s assigned continuity opinion included the benefit of a credit for group support from Markel, with the syndicate material to the group at c.11 percent of group Net Premiums Written.

However, SRL stated that more recent 5-year average results had been in line with B- (below average) benchmarks, in light of reduced underwriting profitability, the significant losses related to COVID-19 and more limited investment returns.

SRL continued that its overall scorecard assessment for syndicate 3000 was now in the B (average) range, despite the inclusion of a credit for group support, following the reduction in the syndicate’s overall profitability. Furthermore, SRL expected that future cross-cycle returns were likely to be affected by reduced investment returns.

The agency noted that the syndicate had realigned its book in recent years, with various lines of business either exited, including its COVID-19 affected contingency book, or transferred to other group platforms.

However, it stated that it considered that the syndicate’s continuity opinion was currently more appropriately positioned within the top half of the B (average) peer group until remediation of the book was clearly demonstrated.

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