Press Article: Resetting the standard
16 January 2018
Following the radical restructuring of the business last year, the Standard Syndicate has finally got its fundamentals right, according to the Lloyd's insurer's new managing director.
The last three years have been challenging for Standard Syndicate 1884 managed by Charles Taylor Managing Agency Limited (CTMA).
Established by The Standard P&I Club in April 2015 as a means to subsidise the club's mutual operation and to expand its product offering, the syndicate confronted a difficult trading environment right from the start, with deteriorating results on both the 2015 and 2016 years of account.
Its hull and cargo books were particularly impacted by adverse market conditions. Indeed, underwriting conditions in the marine energy market, a core class for the syndicate, proved to be so challenging in 2016, that the volume of business generated in that class fell way below plan. This resulted in hull and cargo business representing a greater proportion of the syndicate’s overall book than had originally been intended.
The syndicate's management took steps in 2017 to address this under performance, which included the extensive re-underwriting of the hull and cargo books. "We got rid of 40% of our hull book and 20% of our cargo book," says Steve Robson, the Standard Syndicate’s newly appointed managing director.
These measures included the appointment in July of Robson, previously group head of claims at Brit, to the syndicate's senior management team as claims director and to help drive the syndicate's overall strategic direction. Robson was rapidly promoted to managing director of the syndicate in September, following the departure of the previous incumbent after only three months in the job.
It is still early days, but the benefits of the new strategy, according to Robson, are already evident in the improvement in the syndicate's performance during 2017. For example, the loss development on the 2015 and 2017 years of account has been significantly improved. The syndicate's combined ratio, which was 152% in 2016, also came down considerably last year.
"Re-underwriting the hull and cargo books was absolutely key," says Robson. "We learnt a great deal from the experience. I don't think we necessarily wrote what one would call bad business. But we did write too much business, too soon, in order to broaden the scope of our portfolio. And, when you are so reliant on one or two classes of business to drive that process forward, as we were on hull and cargo business in 2016, there are bound to be issues. But in 2017, after the restructuring of those two portfolios, our attritional loss ratio became more manageable. Suddenly, we were able to make it all work more effectively."
Costs and expenses
In fact, if it was not for hurricanes Harvey, Irma and Maria, he says, the Standard Syndicate would have made a "small" profit in 2017. "What that tells me is that we are getting the fundamentals right, which was a key issue for me when I took this job.
"It was always going to be difficult for us as a start-up syndicate. In the early years, you have to prioritise investment in business development over profit. It is also a time when expense headwinds are massive."
In terms of these fundamentals, Robson points to the improvement in the syndicate's attritional loss and expense ratios last year. In 2015, the attritional loss ratio was 74%. In 2016, it was 62%. In 2017, it was 51%. "That is as good as anyone with comparable books in the market," Robson says.
The Standard Syndicate’s expense ratio is currently just under 15%. This is still too high "but the direction of travel is good", says Robson. "If you look at some of the other start-up syndicates in the market, they have expense ratios of around 16% to 17%."
Another issue for the Standard Syndicate is the departure in recent months of a significant number of individuals, including the chief executive, the finance director, the chief actuary and the director of operations, within the senior management team at Charles Taylor Management Agency (CTMA)
CTMA, which is currently under review by Lloyd's, experienced some issues last year, Robson says. But these issues, he notes, have been largely addressed in consultation with Lloyd's. Crucially, the managing agency's senior executive team have now been replaced.
Robson describes The Standard Syndicate's relationship with Lloyd's as positive. "They have approved our Syndicate Business Forecasts for 2018. They like our business plan. As far as Lloyd's is concerned, the syndicate and its management team are fit for purpose.
"But a second syndicate under CTMA's management would be a welcome development for us because it will cut our expenses. So it is in our interest for the agency to be successful in order to attract another syndicate."
Going forward, Robson envisages strong, but steady, growth for the syndicate, which has a stamp capacity of £125m for 2018 (up from £100m in 2017). "Our access to the infrastructure and distribution networks and capabilities of The Standard Club should make us one of the best-positioned syndicates in terms of bringing business into the market that is new and incremental to Lloyd's. But the big challenge for us is to use those advantages correctly and to build on them."
Indeed, despite the initial challenges, Robson strongly believes in the continued diversification of the syndicate away from its initial focus on marine and energy risks into non-marine classes while, at the same time, continuing its close association with The Standard P&I Club which currently provides the majority of the syndicate's capacity (the remainder is provided by a mixture of Lloyd's names and corporate capital).
"There has been a lot of comment in the trade press last year about the fact that we are going into other lines of business. But that diversification was always in the plan from day one," he says.
Around 60% of the business currently written by the syndicate is new to Lloyd's. Some of the business that comes into the syndicate does not come through brokers, instead coming through its service company, Charles Taylor Insurance Services. "Charles Taylor brokers the business on our behalf, which reduces the cost of brokerage, as well as the overall business acquisition costs, significantly. We effectively write the business direct which means we can pass those savings on to the Club's members. So there is a huge advantage for both us and the Club."
The syndicate's policy is to limit its use of MGAs because of the costs. However, it has partnered with Sciemus for cyber products as it is more cost-effective to do so rather than develop its own products and wordings.
Currently, the syndicate tends to act in a following capacity on business which is not related to The Standard P&I Club. "We are starting to lead more of that business. We lead about 10% to 15% of the business that is non-club related," says Robson. However, with political risk business which is almost completely written outside of the club, the syndicate takes the lead on much of that business. "Most, people don’t realise how many different classes we write these days. But generally, if it is Club business we write it 100% or if it is too big for our appetite, we lead it. We bring the business into the market through our own Lloyd's broker number and then find other markets to support it."
Despite the opportunities in the property catastrophe insurance market in the wake of last year's hurricanes, the syndicate will largely avoid writing specific cat business as a matter of strategic priority. "We are not a cat syndicate, even though we are cat exposed because we write cargo, ports and terminals."
The club's position is, he says, that the syndicate performs consistently in an environment of reduced volatility. "So we will look to increase our earnings through diversification, by creating and benefiting from economies of scale and by keeping our attritional loss ratio down. Like everybody else, we are under pressure to grow. But not at the expense of our fundamentals, which are to reduce our cat exposure and control our business acquisition costs.
The Standard P&I Club connection, he says, is particularly valuable when it comes to bringing business into the market from emerging territories. "Through the Standard Club, we have access to a huge amount of business that Lloyd's will never see. For example, 90% of the business that is potentially available to us through the club, Lloyd's will never have seen."
The view within the Standard Syndicate is that the proportion of club business which it writes (currently 40%) should stay somewhere between 40% and 50%. "Of course, as we grow, those proportions will grow as well. We don't think we are currently utilising the club element as best as we could. But we are working on that."
Indeed, a special strategy group, which co-ordinates activities between the Standard P&I Club and the syndicate, was set up late last year to more effectively explore opportunities on which the two can co-operate in different regions of the world.
Orginally posted on Insurance Day.