Lloyd’s Names caught out by motor book downturn

Individual investors in Lloyd’s businesses, known as Names, have been caught unawares by the heavy motor losses incurred by underwriters during 2010, according to the head of a leading Names’ association.

“A minority core of Names are getting very agitated about it,” Association of Lloyd’s Members chief executive Anthony Young told Insurance Times. Young said the main source of frustration is that motor is viewed by Names as one of the safer classes of business, particularly compared with catastrophe reinsurance. But heavy losses have been incurred by both Equity Red Star Syndicate 218 and KGM Syndicate 260 (now owned by Canopius), leaving Names “surprised and unhappy”.

Lloyd’s posted a calendar-year combined ratio for motor business of 151.5% for 2010, comprised of a 114.8% current-year ratio plus

36.7 percentage points related to prior-year reserve strengthening – a sharp rise on 2009’s 108.4%. The response of Names to the losses will depend on the prospects for motor in 2012, said Young. Personal lines motor premiums are rising rapidly, which could encourage Names to stick with motor.

Lloyd’s has said rising bodily injury claims, fuelled by claims farming, rising fraudulent claims and the increasing use of periodical payment orders, have affected the industry. But Lloyd’s 2010 combined ratio seems out of kilter with the rest of the industry. Analysts estimate the FSA-regulated market’s motor combined ratio for 2010 will be between 115% and 120%, compared with 125% in 2009.

Analysts say it is important to view the Lloyd’s result in context. Part of the reason for the discrepancy is timing: the market outside Lloyd’s undertook the bulk of its reserve strengthening in 2009.

Towers Watson’s head of non-life pricing and product management for Europe, Ryan Warren, said Lloyd’s 2009 combined ratio was lower than the rest of the industry. “The ratio Lloyd’s put out last year was probably under-reported, hence the requirement to increase it this year,” he said.

An analyst, who asked not to be named, said that because of the relatively small size of the Lloyd’s motor book, and its dominance by a handful of players, the results of one company can severely affect the overall result.