Travelers Lloyd's syndicate 'under review' for possible downgrade

Travelers' Lloyd's syndicate 5000 has been placed "under review for possible downgrade" by Syndicate Research Limited (SRL), expressing concerns over its "continued underperformance" relative to its peer group and its 2019 result being materially outside of expectations.

Syndicate 5000 is a composite syndicate backed 100 percent by The Travelers Companies, which operates within the Lloyd's of London insurance market. The company has a 2020 capacity of £260 million and writes a composite account.

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

The syndicate recorded a loss (excluding investment returns on Funds at Lloyd’s deposited at the syndicate level (FIS)) of 32 percent of net premium earned (NPE) on an annually accounted basis for 2019 on a combined ratio of 136 percent (excluding forex), affected by a reserve deterioration of 20 percent of NPE, a large Professional Risks loss of 5 percent of NPE and due to attritional losses increasing by 6 percent NPE.

The loss for 2019 followed losses of 9 percent NPE for 2018, affected by a reserve deterioration of 5 percent NPE and cat losses of 9 percent NPE, and 29 percent NPE for 2017, the latter result affected by 2017 catastrophe losses of 23 percent of NPE and a reserve deterioration of 9 percent of NPE.

SRL stated that, in terms of reported results, on a cross-cycle basis syndicate 5000 had recorded average profits excluding FIS of 0.2 percent of NPE for 2011 to 2019 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. In terms of more recent 5-year average returns, 5-year average losses were now towards the bottom of B- scorecard (s) benchmarks following the loss for 2019.

SRL continued that its overall scorecard assessment for syndicate 5000 based on more recent 5-year average returns was also now in the B- (s) (Below Average) range, following the syndicate’s recent losses, with cumulative indicative average losses on capital for 2017-19 over 50 percent of capital.

SRL noted that the syndicate had withdrawn from Open Market Property business in 2018 following the losses sustained in 2017 and that a new active underwriter had been appointed for 2018, on the previous active underwriter for 2007 to 2017 leaving.

Furthermore, the agency had undertaken a significant amount of remediation work in 2019 and further remediation work in 2020.

However, SRL stated that, excluding the large Professional Risks loss and reserve deterioration in 2019, the accident year combined ratio for 2019 was 111 percent and that, with the potential for losses arising from COVID-19 to affect the 2020 annual result, in SRL’s view it was likely that the syndicate would record a fourth year of losses in 2020.

With recent 5-year average indicative returns on capital towards the bottom of B- (s) benchmarks, SRL placing emphasis on more recent results given the syndicate’s cumulative losses excluding FIS of 70 percent NPE for 2017-19, the syndicate forming a limited element of Travelers group NPW and syndicate 5000’s 2019 result being materially outside SRL’s expectations, SRL has placed syndicate 5000’s B^ (Average) Continuity Opinion under review for possible downgrade.