Catlin syndicate 2003 outlook changed to negative
Syndicate Research Limited (SRL) has affirmed the A- (Good) Continuity Opinion of Lloyd's syndicate 2003 but has changed the outlook for the Continuity Opinion from stable to negative in light of the syndicate’s recent 5-year average performance relative to its Continuity Opinion peer group.
Syndicate 2003 is managed by Catlin Underwriting Agency and is now ultimately 100 percent backed by AXA with a 2018 capacity of £1.5 billion. AXA acquired XL Group which had backed syndicate 2003 since its acquisition of Catlin Group.
The syndicate writes a composite, non-marine orientated account with a good franchise in the Lloyd’s market, SRL noted.
XL had previously merged XL-backed syndicate 1209 into Catlin syndicate 2003 for the 2016 account, with the combined operation representing some 22 percent of XL’s 2017 non-life gross premiums written (GPW).
Syndicate 2003 recorded a loss, excluding investment returns on funds at Lloyd’s deposited at the syndicate level (FIS), of 14 percent of net premium earned (NPE) on an annually accounted basis for 2017 on a combined ratio of 119 percent (including forex).
SRL commented that, in terms of reported results, on a cross-cycle basis the combined syndicate 2003 and syndicate 1209 operation had recorded average profits excluding FIS of 8 percent of NPE for 2009 to 2017 under annual accounting but had recorded more recent 5-year average results of 4 percent NPE.
SRL continued that syndicate 2003’s assigned Continuity Opinion benefited from an adjustment for the syndicate’s franchise within the Lloyd’s market. It also stated that the assigned Continuity Opinion factored in an adjustment for group support, recognising the significant resources and the diversified nature of the AXA group, albeit more limited than prior to the AXA acquisition with syndicate 2003 forming a less material element of the group following the acquisition.
SRL stated that with syndicate 2003’s cross-cycle indicative average annual returns on capital excluding FIS in line with the B+ (Above Average) peer group and the benefit of its franchise within the Lloyd’s market and its group support, in SRL’s opinion the syndicate was positioned within the lower end of the A- (Good) peer group. However, with more recent 5-year indicative average annual returns on capital more in line with the B (Average) peer group, its expectation was that the syndicate’s future performance might potentially be more in line with the B (Average) or at the lower end of the B+ (Above Average) peer groups, with continuity for policyholders dealing with syndicate 2003’s underwriting teams more appropriately positioned within the B+ (Above Average) peer group.
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