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Syndicate 1084 Annual Report 2010
Contents
02
Underwriter’s Report
12
Managing Agent’s Report
17
Profit and Loss Account for the year ended 31 December 2010
18
Balance Sheet at 31 December 2010
19
Statement of Cash Flows for the year ended 31 December 2010
20
Notes to the Accounts for the year ended 31 December 2010
31
Statement of Managing Agent’s Responsibilities
32
Independent Auditors’ Report to the Members of Syndicate 1084
Underwriter's Report
Underwriting performance
The results of Syndicate 1084 reported in these accounts are prepared on an annual accounting basis in accordance with UK GAAP.
The Syndicate’s allocated capacity for the 2010 underwriting year was £745m (2009 £634m).
This commentary focuses on both the 2010 results and the 2011 outlook for Syndicate 1084.
It was a challenging period for the insurance industry, as losses from four significant events – Deepwater Horizon, the Chile and New
Zealand earthquakes and the Australia floods – eliminated the gains from a quiet US hurricane season. As a result we recorded an
underwriting loss of £0.9m (2009 profit of £45.8m), before the impact of foreign exchange on non-monetary items, including good results
from our Energy and Marine Divisions.
Gross premiums written increased to £863.5m in 2010 (2009 £798.9m).
Net earned premiums increased by 6.0% to £654.3m in 2010 (2009 £617.3m).
The combined ratio, excluding the impact of foreign exchange gains and losses, increased to 100.1% (2009 93.2%).
The reported combined ratio for 2010 rose to 100.5% (2009 98.2%).
Major events
The magnitude and frequency of both man made and natural catastrophe insured losses increased in 2010, with total market insured
losses reaching US$36bn according to Swiss Re research. European Windstorm Xynthia, the earthquakes in Chile and New Zealand and
the Australia floods were the most costly insured natural catastrophe loss events, while Deepwater Horizon was the largest man made
insured loss during the period. The table below identifies our largest losses for 2010, which includes four of these events.
Catastrophe loss
Event date
Chile earthquake
Deepwater Horizon
New Zealand earthquake
Australia floods
February 2010
April 2010
September 2010
December 2010
Estimated market
Syndicate 1084’s
insured loss estimated net loss
US$bn
US$m
8.5
1.5
3 to 5
4 to 7
28.6
25.3
24.3
8.0
Affected
Divisions
Property
Energy and Marine
Property
Property
Australia flood losses emanate from our property direct, facultative and treaty reinsurance accounts. These are complex events, and we
expect classification of the floods as two or more insured events, in particular Rockhampton in December 2010 and Toowoomba, Ipswich
and Brisbane in January 2011. We currently estimate our loss for the December 2010 event at US$8.0m.
The Chilean earthquake loss arises primarily from our direct and facultative property accounts, while the majority of our New Zealand
earthquake loss arises from our property treaty reinsurance account. We have similar exposures to the February 2011 earthquake in New
Zealand. We will also have exposure to the Japanese earthquake and resulting tsunami in March 2011.
Deepwater Horizon exposures arise from our direct energy portfolio (US$20.2m) and our marine excess of loss account (US$5.1m). We
had only limited exposure to European Windstorm Xynthia, which produced insured losses of some US$3bn mainly through France and
Germany in February 2010.
The period also saw significant storm-related losses in the United States, wind and hailstones in Australia, flash floods in France and the
earthquake in Haiti. In the Gulf of Mexico, despite an active season and above average frequency and severity of developing hurricanes,
there were no major associated losses, as well as unusual weather conditions preventing hurricanes from making landfall in the United
States. The performance of our Property, Energy and Marine Divisions benefitted from this.
The aviation market again suffered heavy losses in 2010, with a high incidence of events in developing countries outside of the major
airline sector, including Afriqiyah Airways in Libya, Aerocaribbean in Cuba and Airblue in Pakistan.
02 Syndicate 1084 Annual Report 2010
Underwriter's Report
Rates in the UK motor market hardened significantly in 2010 as the market continued to strive for a return to profitability. It was another
difficult year for those motor insurers who had been slow to recognise the growing effect of claims-farming and recession-related claims.
We took action in 2009 to address the impact of such losses, including major rate increases for our private car products and steps to
reduce the cost of fraudulent claims and credit hire claims. While the combined ratio for 2010 was in excess of 100%, these moves have
protected us from notable further losses and we are now experiencing improved underwriting performance and we expect to produce a
combined ratio of less than 100% for the 2010 underwriting year.
We continue to monitor closely the wave of protests throughout the Middle East and North Africa that began in Tunisia in January 2011.
As leading political risk, trade credit and political violence underwriters we will have exposure to risks that arise as these events unfold,
although we have received no claims notifications to date.
Premium Rating Index
2003
2004
2005
2006
2007
2008
2009
2010
2011E
Energy
International Property
North American Property
Marine
Specialist Lines
Aviation
327
166
165
167
174
171
310
154
163
171
187
168
347
148
171
175
184
164
486
155
232
187
179
160
445
148
234
184
171
148
410
140
216
184
166
146
440
146
233
194
168
155
454
146
234
196
166
152
498
141
209
196
168
149
Combined (excluding UK)
182
182
185
204
197
187
198
200
202
UK
130
132
130
130
132
140
150
176
201
Combined
156
157
158
181
175
169
179
185
189
The index, which provides an overall measure of the financial terms of a policy, is based on Chaucer's internal assessment by reference not only to headline premium rates, but
also to other financial aspects of cover, including policy deductibles, commissions and other relevant coverage amendments. The index for 2000 is 100. The 2011E index values
are estimates
Underwriting outlook
Our ability to focus capital in those areas that offer improving underwriting margins means that we expect a small increase in premium
rates from our underwriting portfolio in 2011, with improved rates in the Energy, Specialist Lines and UK Divisions offsetting flat or
decreasing rates in our Marine, Property and Aviation Divisions.
In the aftermath of Deepwater Horizon, energy rates are rising as the oil industry reassesses the physical risks and liability exposures
confronted. In response, we have increased the capacity of our Energy Division by £33m to £184m. We have also recruited strong
technical resource to enable us to respond positively to this increased demand for coverage.
We have increased the underwriting capacity of our UK Division by £26m to £195m to accommodate rate rises levied for 2011. We
forecast rate increases of 14% against a blended forecast for claims inflation of 8% in 2011. Rates for personal lines motor business will
lead this. Within our UK motor direct brand, we also intend to expand our direct and aggregator distribution capabilities to enhance our
return through an increased volume of non-risk income.
Away from these opportunities, markets are softer. With a second successive hurricane season with no major insured losses, there is
continued downward rate pressure on catastrophe exposed risks. Despite catastrophe losses outside of North America there also remains
an oversupply of international property capacity, which continues to suppress rates. In addition, we also expect property rates in noncritical catastrophe-exposed territories to continue to fall. In response, and in line with our strategy of seeking to protect and enhance
our underwriting margin, we continue to focus on robust technical pricing and to decline uneconomic business.
Within our marine portfolio, aside from excess of loss renewal rates, which have hardened in response to Deepwater Horizon losses, and
political risk rates, which continue to recover, rates are either flat or continuing to soften. The specialist lines market is also weak, with
competitive pricing and a flow of new entrants adding to capacity.
After a promising first half of 2010 for airline hull and liability rates, continued overcapacity and an absence of major market losses caused
downward rating pressures to re-emerge. We expect rate pressure to continue in 2011 in the absence of major losses.
Pricing across our underwriting portfolio for the January renewal season supports our assessment of market conditions in 2011, with both
rates and volumes achieved largely as planned.
Syndicate 1084 Annual Report 2010 03
Underwriter's Report
ENERGY DIVISION
The Division recorded an overall underwriting profit of £8.8m (2009 £10.2m) from an increased gross premium income of £177.7m (2009
£157.2m) as the Division benefited from improved rates following losses sustained from Deepwater Horizon. The combined ratio was
92.2% (2009 91.0%).
We are currently recruiting to strengthen our London and Singapore operations and we have formalised our relationships with business
producers in the US, Scandinavia, Canada and South America to strengthen our overseas representation.
Exploration and production
The loss of Deepwater Horizon, the Transocean drilling unit, and the subsequent uncontrolled oil leak from the BP well Macondo,
dominated the offshore exploration market during the period. This is the most significant risk loss (i.e. non-natural catastrophe) to strike
energy underwriters since the Piper Alpha rig explosion in 1988.
Prior to the loss, and following a benign Gulf of Mexico hurricane season in 2009, pricing was under increasing pressure, with some
higher quality renewal business attracting rate reductions. After the loss however, the rating environment has transformed, enabling us to
benefit from subsequent rate increases in excess of reductions seen during the first quarter. The positive rating environment continued
through 2010, with the resolve of direct underwriters holding firm in the face of difficult renewal negotiations.
Construction
Income increased significantly as growing confidence in world economic recovery saw the market receive more mid to large construction
orders. Rates, and more importantly conditions, have remained stable across the sector despite the delay of some major projects to
2011.
Energy liability
This account is showing significant rating increases following the extensive pollution caused by the Deepwater Horizon loss. This,
combined with a strong demand for increased limits as clients realise the true levels of casualty risk run against their balance sheets, has
caused an increase in business volumes.
Onshore and renewables
Refining risk rates remain under pressure as capacity remains high. In response, the account has focussed on the selective underwriting
of superior engineered risks. Rates and conditions for renewable energy source risks remain acceptable although new capacity continues
to join the market.
04 Syndicate 1084 Annual Report 2010
Underwriter's Report
PROPERT Y DIVISION
International property underwriters experienced a difficult 2010, with earthquakes in Haiti, Chile and New Zealand, storm losses in
Australia and Europe and flooding in Australia. As a result, despite the benefit of a quiet hurricane season, the Division reported an
underwriting loss of £13.8m (2009 profit of £44.4m), on a gross premium income of £209.3m (2009 £192.5m). The combined ratio
increased to 108.8% (2009 76.8%).
The Property Division announced two key developments during 2010. First, we withdrew from North American facultative and delegated
authority property business with wind and earthquake exposure. This followed in-depth research into the most efficient use of capital and
risk appetite by the Division. Second, we took further steps to strengthen our access to high quality business worldwide with the opening
of Chaucer Latin America in Buenos Aires to write Latin American facultative property business and the launch of a Facultative Property
Team in our Chaucer Singapore office.
Delegated authorities
Following our withdrawal from North American delegated underwriting, we continue to manage the run off for these accounts, which will
not expire until 2012. A number of delegated underwriters have revised income estimates down as difficult market conditions continue to
prevail. Through active management of the run off we are maintaining the gross margin derived from the account.
The current global economic situation, combined with declining rates in a number of territories, affected the result for our international
delegated authorities account. The continued weakness of sterling has also had an adverse impact. However, there are some positives
for 2011, with rate improvements anticipated for New Zealand, South Africa and some Australian business.
Facultative property
With rates continuing to fall, our withdrawal from catastrophe exposed North American business has proved beneficial. Our switch in
2009/10 to Fortune 2,500 risks and a focus on higher attachment points has been successful, and we recorded an excellent result in this
class.
International rates have continued to decline in most territories and in response our underwriters have targeted business with high
attachment and low frequency points. The Chilean earthquake produced the largest loss in ten years for this account, while the Australian
floods also significantly affected the result.
Our new teams in Argentina and Singapore will enable us to access business that does not typically reach London, as well as benefiting
the balance of the Division’s account.
Treaty
Our North American Treaty Team saw pressure on rates in 2010, although pricing for peak exposures was flat. Following the quiet
hurricane season, rates will inevitably see more pressure in 2011.
As our North American facultative and binder business runs off and our related catastrophe exposures reduce, the Treaty Team will
assume the freed aggregate capacity. However, in response to market conditions, our risk appetite for North American catastrophe
exposed business remains unchanged for 2011.
The benign hurricane season has helped our North American underwriters to produce another first class result. International rates have
again declined and the New Zealand earthquake and Australian floods affected the account. Our exposure to the Chilean earthquake was
low, as treaty rates there were generally unacceptable.
Engineering
The direct and facultative market has become more active again in both London and Singapore following the launch of a number of major
projects held back from 2009. However, despite significant loss events in Canada, Qatar and the United States, rates remain under
pressure from the additional capacity of new entrants. Our proportional engineering treaty account saw rating pressure in 2010, although
the excess of loss account achieved rate increases. Overall, the result was positive.
Syndicate 1084 Annual Report 2010 05
Underwriter's Report
MARINE DIVISION
The Marine Division produced a good result in 2010, marked by strong performances from our political risk and specie accounts. The
Division recorded an overall underwriting profit of £7.6m (2009 £8.7m) from a gross premium income of £161.6m (2009 £158.9m). The
combined ratio reduced to 94.0% (2009 100.9%).
Hull, liability and war
Hull market pricing was stable in 2010 despite continued rating pressure in the mega yacht market following good results. Generally,
pressure on good accounts came in the form of increased profit sharing. Disciplined cycle management remains imperative.
After some recovery in the summer, the shipping market came under further pressure from continued over supply of tonnage. Certain
owners, notably those with stronger balance sheets, have begun to replenish or to grow their fleets, anticipating improved levels for global
trade.
The threat of piracy remains high, particularly from Somalia. It now extends throughout the Indian Ocean region, with breach areas
extended in December 2010 to encompass the increased threat. This will generate additional war premiums, particularly for the Middle
East Asian trade route.
Marine excess of loss
Deepwater Horizon dominated 2010, with our marine excess of loss account retaining a net exposure of US$5.1m. This was the largest
loss to affect the market since the Piper Alpha rig explosion in 1988 and, together with other major losses worldwide, has caused market
conditions to improve.
Cargo and specie
The cargo market remains soft, with intense competition from over capacity in many major regions, notably North America, Singapore,
London and Lloyd’s. We continue to decline the majority of new risks shown, due to low rates and loose wordings, and to decline
renewals with uneconomic rate reductions. Unfortunately, we expect the market to continue in this vein. Our focus will remain on the
retention of our profitable core account. We also aim to grow our successful Middle East account, and to continue to develop our
promising Chinese account.
Our specie account continues to trade successfully, with increased income and a low loss ratio.
Political risk, trade credit and Political violence
Underwriting conditions are extremely positive at present, with clients increasing operations in emerging markets because of high
commodity prices, and western banks easing credit conditions and lending to support these. This is particularly evident for mining
projects, which slowed dramatically in 2008 and 2009. Companies are also more risk averse now and more willing to consider insurance
products to protect their portfolios. As a result, we are experiencing new streams of business, with increased enquiries for both fixed and
mobile asset protections.
It was inevitable that the market would require recovery actions following the global economic crisis, including the extension of tenors to
enable parties to pay down their obligations over time. Third parties have entered the market, prepared to purchase insured debt. This
can be complex and time consuming, and requires suitable trading conditions in secondary debt markets to generate a price at which we
will trade. To date we have been pleased with our progress.
Rates for renewal and repeat business rose by approximately 6% across our portfolio in 2010 and the prospects for 2011 are very
encouraging.
The worldwide demand for political violence and terrorism insurance remains strong, with rates responding to higher levels of threat or
capacity contractions for individual countries or regions. In the aftermath of the Bangkok riots, the Lloyd’s market has continued to offer
coverage albeit at substantially higher prices, while in the US and Europe, which has seen significant rate decreases, prices should begin
to stabilise in 2011.
We continue to monitor closely the unfolding events in the Middle East and North Africa. Our political violence account has exposure to
the results of social unrest in these territories, although there is only limited evidence of protestors targeting industrial and commercial
assets and we have received no loss notifications to date.
There are also potential exposures through our political risk account, which protects against the confiscation or nationalisation of privately
owned assets, and our trade credit/contract frustration account that support international trade worldwide. While the situation is ongoing,
we have not received notifications of loss to date.
06 Syndicate 1084 Annual Report 2010
Underwriter's Report
AVIATION DIVISION
Our Aviation Division recorded an underwriting profit of £2.0m in 2010 (2009 £10.9m) on gross premium income of £48.4m (2009
£46.3m), despite continued challenging market conditions. Our combined ratio increased to 94.3% (2009 73.5%).
Airline hull and liability
As anticipated, rates fell in the second half of 2010, despite a high incidence of losses in developing countries among second and third
tier operators. As the majority of our accounts focus on these operators, we have incurred our share of these losses.
General aviation
The general aviation account remains stable, with modest reductions balancing increases on poor performing accounts. The significant
loss from the collapsed aircraft hangars at Dulles International Airport in Washington D.C. in February has not dampened the enthusiasm
of the market for corporate jet-related business.
Refuellers and products
Products rates are stable, although airport rates remain under pressure with clients achieving reductions of up to 10%. This business
continues to perform well.
Syndicate 1084 Annual Report 2010 07
Underwriter's Report
SPECIALIST LINES DIVISION
The Specialist Lines Division performed satisfactorily in 2010, despite the continued pressure of over capacity on rates. The Division
recorded an underwriting profit of £1.2m (2009 £9.8m) as the combined ratio reduced to 98.3% (2009 99.1%).
Although rate improvements remain scarce, the market has begun to stabilise. We have maintained the disciplined underwriting approach
that has protected us from many of the recent major market losses arising from the global economic crisis and are now in a strong
position to benefit from more favourable conditions as these emerge.
We maintain a core account of high quality risks, which we underpin with strong broker relationships. As market leaders for our business
classes, we have influence and control over our portfolio. This has helped us to establish a firm foundation from which to build as
conditions improve. We continue to put profitability before growth, with our commitment to rate integrity taking due recognition of claims
inflation and the changing risk environment.
Financial institutions
New entrants have slowed the pace of improvement following the strong rate recovery in 2009 caused by the banking crisis. Despite this,
our selected accounts continue to see improvement. Our avoidance of large global institutions has proven to be a sound strategy as we
have missed many of the very large losses that have arisen in this area and we are in a strong position to take advantage of opportunities
that arise.
Medical malpractice
Our institutional healthcare account, which provides excess hospital liability coverage, continues to deliver market leading results through
close attention to rate modelling and excellent client and broker relationships. The competitive market environment is a challenge and has
restricted growth for both institutional risks and for our general account. We do not foresee a hardening in the short-term but hope to
continue to produce strong results from our core account.
Errors and omissions / Direct casualty
While there remains significant over capacity in the market, which limits growth opportunities, we continued to develop positively through
our strong relationships with London brokers and US intermediaries. A positive result has rewarded our close attention to rating and risk
quality, and provides a strong platform from which to build when conditions begin to improve.
International casualty treaty
After a successful launch in 2009, our Treaty Team focused on consolidation of the account in 2010. Original rates remain weak, and
there are limited opportunities for growth. As recognised market leaders, the Team is an effective market benchmark for risk analysis and
rate quality and hence well placed to respond to the improving market conditions that will inevitably arise.
General casualty treaty
We continue to maintain rate discipline in the prevailing soft market. While this limits our volume we remain pleased by the account's
performance.
08 Syndicate 1084 Annual Report 2010
Underwriter's Report
UK DIVISION
UK motor market conditions for new business improved significantly in 2010, particularly in the private car sector. Chaucer Insurance, our
UK Division, continues to benefit from strengthening premium rates and actions underway to reduce rising claims costs. The Division
recorded an underwriting loss of £11.0m (2009 £9.1m). The combined ratio improved to 106.7% (2009 109.7%) on a gross premium
income of £183.5m (2009 £167.1m).
We increased UK motor premium rates by 17.3%, with standard private car prices rising by more than 35%. Rates within the noncomprehensive private car sector increased dramatically following the withdrawal of a number of underwriters; we increased our rates by
approximately 50%, with no reduction in business volumes. While these rate increases are significantly higher than claims inflation, the
market in general needs to continue at this pace in order to return to profit.
Work continues through specialist units within our Claims Department to reduce the costs of credit hire and to detect fraudulent claims. Claim
farming, in particular, is a major problem for UK motor insurers, exacerbating the cost of third party bodily injury motor claims. These issues
have now reached the political agenda and we welcome the proposed legislative changes, including the cessation or reduction of claim referral
fees. In the absence of these changes, the market must continue to increase rates to contain the rising costs.
The outlook for our market is positive and we forecast an increase of 14% in UK motor premium rates in 2011, with standard private car
prices continuing to benefit most. We anticipate that fleet prices will start to recover in 2011, following five years of soft market
conditions.
Our motor portfolio is 100% UK-based and has three main components: private car, specialist motor and fleet.
Private car
Our private car account grew significantly in 2010 and now accounts for over half of the portfolio. Aggregators continue to take a greater
distribution share of private motor products in the UK, advertising heavily to protect and grow market share. Our products are now
available via intermediaries on all of the major aggregator sites.
We have also developed our ChaucerDirect consumer web site, which offers two specifically designed private car products and receives
business enquiries from three of the major aggregator sites. Income from our ChaucerDirect channel grew from £3.2m in 2009 to £6.5m
in 2010.
In addition, we plan significant development of our direct business to increase its share of our private car account.
Specialist motor
Our specialist motor account comprises commercial vehicle, specialist vehicles, family fleets, motorcycle and motor trade.
We introduced a new commercial vehicle product in 2009, for which sales volumes and loss ratios have since performed in line with
budget. The commercial vehicle market began to show promising improvement in the second half of 2010, with rate increases significantly
exceeding claims inflation.
For other products, such as motorcycle and specialist vehicles, we continue to distribute policies through a small number of niche
intermediaries. These sectors are less cyclical and have not experienced the large rate increases of the private car sector.
The taxi market was soft and we withdrew our standard taxi product at the end of the first quarter of 2010 in response. We will not
consider re-entering this market unless it improves significantly.
Fleet
Our fleet account contains a mix of vehicles, including private car, commercial vehicles, haulage and coaches, which we write primarily
through the Lloyd’s broker market. The portfolio focuses on mainly medium and small fleets, where price competition is less intense.
In contrast to the private car market, the fleet market has remained weak. We have continued to reduce the size of our account to less
than a fifth of our UK Division portfolio in 2010, from over half in 2005. We have seen a number of new entrants over the past two years,
each of which has been prepared to join a market sector willing to write new business at rates below those accepted for renewals.
However, the fleet market is not exempt from either claims farming or fraudulent claims and it will inevitably have to apply significant rate
increases to return to profitability. We plan to take advantage of this improvement when this happens.
SME Commercial
In 2010 we generated income of £5.1m from UK employers and public liability insurance (2009 £4.0m), having launched a combined
commercial product on our new technology platform in January.
Syndicate 1084 Annual Report 2010 09
Underwriter's Report
Reinsurance
Our core philosophy is that underwriting should make a profit gross of reinsurance. We purchase reinsurance primarily to manage
individual large risk exposures and catastrophe accumulation. This is the cornerstone of our ability to control performance volatility.
Counterparty strength is important to Syndicate 1084. We place the programme with security, rated ‘A’ or better by Standard & Poor’s
or equivalent rating agencies, at an acceptable cost.
At 31 December 2010 the expected ultimate costs of the 2010 and 2009 reinsurance programmes, including outstanding cost and
expected reinstatement premiums, was:
2010
Converted
Can$m
£m
£m
US$m
Facultative
Proportional
Excess of loss
0.1
11.1
25.1
3.8
63.8
108.4
0.6
0.4
Total
36.3
176.0
1.0
1
2009
Converted
Can$m
£m 1
£m
US$m
2.5
52.2
94.4
1.3
7.2
23.1
4.9
33.9
86.6
0.2
1.1
4.4
28.9
79.0
149.1
31.6
125.4
1.3
112.3
Converted at 31 December 2010 closing rates of exchange
For property and specialist lines accounts, reinsurance of a proportional and non-proportional nature was purchased in order to provide
sufficient line capacity to control business and to protect against severity and frequency of losses. The retention following a catastrophe
event for 2010 was US$50m and has reduced to US$45m for 2011. The direct and facultative per risk retention for 2010 after application
of the core risk-excess programme was US$7.5m on a first loss basis, reducing to US$5m for the second loss.
The marine and energy accounts purchase extensive protections to provide cover to minimise the effect of any major loss or series of
losses. For most marine classes the 2010 net retention was at least US$5m and for energy classes was US$12.5m.
The UK motor account has protection from a reinsurance programme placed on a ’losses occurring’ basis, which is unlimited, both in
terms of the amount and the number of losses sustained. For both 2010 and 2011, the programme attached at £1m, with the first layer,
which provides £1m of cover, being placed with a 50% order.
The following table provides analysis of the Syndicate’s reinsurance debtor security (including reinsurers’ share of technical provisions),
net of bad debt provisions:
Reinsurance rating (Standard & Poor's or equivalent)
2010
Debt
%
2009
Debt
%
Lloyds Syndicates (A)
AAA
AA
A
BBB
Collateralised
Other
39.7
0.4
35.9
20.1
1.8
0.1
2.0
16.8
4.9
32.4
43.5
0.4
0.2
1.8
100.0
100.0
Ratings as at 31 December 2010 and 2009 respectively
Other is reinsurers not rated by major rating agencies and is net of offset where appropriate. The figure includes 0.1% of collateralised security (2009 0.1%).
There is continual review of our exposure to reinsurance companies, with particular attention given to commutation opportunities in
appropriate circumstances. Syndicate 1084 carried provisions for bad and doubtful reinsurance debts totalling 2.9% of reinsurance
recoveries due at 31 December 2010 (2009 2.9%).
10 Syndicate 1084 Annual Report 2010
Underwriter's Report
Investment performance
The preservation of capital and maintenance of sufficient liquidity to support the business and the enhancement of investment returns,
within a set of defined risk constraints, are at the core of the financial market risk policies adopted by the Managing Agent.
Syndicate 1084 invests primarily in cash and fixed income securities. The following table summarises the performance of the investment
portfolio in 2010.
Average
fund
£m
US Fixed Income
UK Fixed Income
UK Equities
Hedge Funds
Cash Deposits
345.9
149.8
2.5
14.2
410.6
923.0
19.1
3.6
0.9
(2.0 )
7.4
29.0
(0.7 )
923.0
28.3
Investment expenses
Total
Income
£m
Return
%
Benchmark
return
%
5.5
2.4
36.7
(14.0 )
1.8
3.2
Benchmark index
2.3
2.7
15.1
3.2
0.3
1.5
1-3 Year Government Bonds
1-3 Year Government Bonds
FTSE All Share
US 1m LIBOR + 300 bp
50% UK/ 50% US 1m LIBOR
Average fund is calculated by prorating funds over the period for which they were held. Benchmark indices are those effective over the 12 month period to 31 December 2010
The Syndicate redeemed hedge funds with a total value of £34.5m during 2010 leaving residual exposures of less than 0.5% of the
Syndicate investment portfolio.
The bond portfolio performed satisfactorily during 2010, recording a return of 4.6% (2009 6.8%).
The average duration of the fixed income portfolio at 31 December 2010 was 2.0 years (2009 2.5 years) and the weighted average yield
to maturity was 2.4% (2009 3.2%).
Investment outlook
We allocate risk appetite between underwriting and investments after assessing the relative potential returns and associated risks of each. The
focus will remain on achieving stable underwriting returns in 2011, pursuing the opportunities that our balanced portfolio presents, and for this
reason we will continue to adopt a conservative investment strategy in 2011, focussing on capital maintenance to support underwriting.
With little exposure to risk assets (financial assets, excluding bonds, cash and deposits), where returns are volatile, we expect investment
returns to be subdued in 2011 because of continued low interest rates. However, opportunities to invest cash at more attractive yields
should arise if the pace of global economic recovery accelerates, inflation increases or concerns over sovereign debt rise. A 1% increase
in UK and US interest rates will generate additional investment income of £10.4m from the current portfolio.
Foreign currency management
With approximately a fifth of premium income currently generated from UK motor insurance, we have less gross foreign currency exposures
than many Lloyd’s entities, although we still write substantial amounts of business in foreign currency, the majority of which is in US dollars.
We match US and Canadian dollar insurance liabilities with assets held in the same currencies. We monitor exposures arising from retained
profits and losses in major foreign currencies quarterly and manage these with currency purchases and sales as appropriate.
The Syndicate 1084 Team
I am pleased to welcome our new International Liability Division to Chaucer Syndicate 1084, led by Mark Lawrence. The new Division, which
launches in early 2011 with a capacity of £43m, specialises in international liability business, in particular professional and general liability
insurance.
Conclusions
The outlook for 2011 is encouraging and I believe that the diversity of our portfolio and the strength of our underwriting will enable us
take advantage of the positive current market conditions in UK motor and international energy markets. Away from these opportunities,
we shall adopt a cautious approach for those markets, including property, marine and specialist lines, where conditions are more difficult,
albeit with the underwriting strength in place to take advantage of any improvement in market sentiment.
John Fowle
Active Underwriter
Chaucer Syndicate 1084
17 March 2011
Syndicate 1084 Annual Report 2010 11
Managing Agent’s Report
The Directors of the Managing Agent present their Report for the year ended 31 December 2010.
This Annual Report is prepared using the annual basis of accounting as required by Statutory Instrument
No. 1950 of 2008, The
Insurance Accounts Directive (Lloyd’s Syndicate and Aggregate Accounts) Regulations 2008 (‘Lloyd’s Regulations 2008’).
The Managing Agent
The Managing Agent is Chaucer Syndicates Limited, whose registered office is Plantation Place, 30 Fenchurch Street, London EC3M 3AD
and registered number is 184915.
Principal activities
The Syndicate’s principal activity during the year continued to be the transaction of UK motor and worldwide general insurance and
reinsurance business in the United Kingdom. This Report covers the business of Syndicate 1084.
Review of the business and future developments
The Syndicate’s key financial performance indicators during the year were as follows:
2010
£000
Gross written premiums
Profit for the financial year
Combined ratio 1
1
863.5
25.1
100.5 %
2009
£000
798.9
55.5
98.2 %
The combined ratio is the ratio of net claims incurred and net operating expenses to net premiums earned. A lower combined ratio represents better performance.
Active Underwriter
John Fowle was appointed the Active Underwriter of Syndicate 1084 from 11 January 2010, succeeding Bruce Bartell, who in turn
assumed Chief Underwriting Officer responsibilities of the Managing Agent’s parent company, Chaucer Holdings PLC.
Principal risks and uncertainties
The following paragraphs describe the principal risks and uncertainties facing the Syndicate.
UNDERWRITING RISK
Each Division of the Syndicate undertakes an extensive annual underwriting planning process in order to determine its targets for
premium income and return on capital. Underwriting risk appetite defines acceptable probability of different levels of net underwriting
loss, expressed as a percentage of net tangible assets for both a single event and accumulated events over 12 months.
The detailed stochastic modelling of underwriting risk, both gross and net of reinsurance, using dynamic financial analysis techniques,
assists with the setting and management of risk appetite.
Catastrophe risk is the main component of underwriting risk and the Syndicate uses Exceedance Probability (EP) curves as the primary
tool for managing this risk. For a defined underwriting portfolio, an EP curve plots expected probability against loss size. This represents
a sliding scale of risk appetite against associated exceedance probabilities.
Managing risk aggregation
The Syndicate monitors the aggregation of underwriting exposure using specialist modelling software tools. The Syndicate monitors its
loss exposure to a suite of natural catastrophe events (including the prescribed Lloyd's Realistic Disaster Scenarios) on a monthly basis.
Modelled loss caps are set at an underwriting business unit level for each event; this provides the underwriters with a practical tool for
managing their exposures.
Concentrations of risk
The Syndicate has exposure to losses arising through the aggregation of risks in geographical sectors. This mainly affects the property,
marine and energy portfolios. Events giving rise to such aggregations are typically natural disasters such as earthquakes or weatherrelated disasters such as hurricanes, windstorms and typhoons. Other examples include major terrorism events.
As part of the risk management process, the Syndicate models Realistic Disaster Scenarios (RDS) every quarter to enable the Syndicate
to monitor potential accumulations of underwriting exposure against a pre-determined suite of catastrophic events and to confirm no
breach of underwriting risk appetite.
Maximum lines
Underwriters manage individual risks through adherence to set maximum line sizes.
Terms and conditions of contracts
Other than UK motor insurance, all of the policies underwritten have maximum indemnity limits per insured event. In addition, the number
of reinstatements per policy is limited and deductibles and policy exclusions further limit risk.
UK motor insurance is unlimited by statute but the Syndicate buys reinsurance to limit any potential maximum loss arising from any one assured.
12 Syndicate 1084 Annual Report 2010
Managing Agent’s Report
Underwriting controls
The Syndicate operates a number of underwriting controls, details of which are set out below.
Peer and independent reviews
Peer review is performed on a risk-based sample of business by a fellow underwriter to ensure adherence to sound underwriting
practices. The independent review process involves detailed review of individual underwriting risks and supporting documentation on a
monthly basis.
Underwriting risk review
Themed underwriting reviews are conducted by the underwriting risk review department to ensure that underwriting procedures and
discipline are followed.
Internal audit
Internal audit provides assurance over the performance of the underwriting controls.
Emerging risks
An emerging risk is perceived to be potentially significant but which may not be fully understood or allowed for in insurance terms and
conditions, pricing, reserving or capital setting. The Managing Agent has an Emerging Risk Group to identify and assess the potential
impact of such risks.
Monitoring performance against plan
The Syndicate manages performance against plan through monthly divisional reporting, utilising centrally prepared underwriting
management information packs. Each Division reports to an Underwriting Board which in turn reports to the Board of the Managing Agent.
This control process ensures several layers of review for underwriting risks, with particular focus on pricing, loss ratio forecasts, reserving
adequacy, risk aggregation, catastrophe modelling and reinsurance protection.
CREDIT RISK
The Managing Agent reviews all reinsurer counterparties with whom the Syndicate wishes to conduct business and sets credit thresholds
for the total potential recoveries due from each reinsurer. The review includes an analysis of the financial strength of the reinsurer, its
payment performance record and standing in the market. Thereafter, management of reinsurer credit risk follows active and regular
review, with the assistance of outside expertise, of the credit rating and financial exposure to all approved reinsurers.
The Syndicate predominantly purchases reinsurance from reinsurers rated strong or better by Standard & Poor’s (or equivalent). Maximum
exposures per reinsurer are set in response to a reinsurer’s rating and net assets.
Broker credit risk limits are also determined depending on the grading of the relevant broker and exposures monitored against limits on
a monthly basis.
CLAIMS RISK
While claims events are inherently uncertain and volatile, the claims department is an experienced team covering a wide range of business
classes. The Syndicate manages claims related risks by way of reinsurance and by a similar monitoring process to underwriting. The
Managing Agent has various management controls in place to mitigate claims risk, some of these controls are outlined below.
Claims settlement and reserving authority limits
The Managing Agent employs strict claims handing authority limits. All transactions in excess of an individual claims handler’s authority
are referred in a tiered approach to a colleague with the requisite knowledge and experience.
Monthly reporting
Various reports are produced based on several different aspects of the claims handing function such as, significant movements,
catastrophes, and static claims. These reports are communicated at various levels both within the business and with key external
stakeholders, including the Lloyd’s franchise performance directorate.
Management of external experts
The Managing Agent actively appoints trusted third party loss adjusters, surveyors and legal advisors for claims investigation and
assessment services. The development of long standing relationships with key experts and agreed Terms of Engagement ensures the
Syndicate always receives a first class service with direct contact actively encouraged. However, this process is not exclusive. If no
suitable expert exists on the Syndicate’s panel for any one particular claim, an ‘Expert Exception’ process is in place in order to ensure
needs are met without delay.
Syndicate 1084 Annual Report 2010 13
Managing Agent’s Report
RESERVING RISK
The Syndicate’s reserving policy seeks to ensure appropriate allowance for reserving risk, consistency in reserving from year to year and
the equitable treatment of capital providers on the closure of a year of account.
Reserves are set on a two tier hierarchical basis.
Tier 1: Actuarial best estimate reserves
Actuarial best estimate reserves are prepared on an underwriting year basis and are intended to be true best estimates, i.e. estimates of
expected value claims reserves. These are the basis for internal reporting and the derivation of expected loss ratios for business planning.
The actuarial best estimate reserves are the responsibility of the Signing Actuary. The Managing Agent’s Actuarial Team calculates the
reserves in conjunction with extensive discussions with underwriting, claims and reinsurance staff.
Tier 2: Syndicate reserves
Syndicate reserves are the level of reserves booked at a syndicate level. Determination of syndicate reserves is a two-stage process: first,
they are determined on an underwriting year basis and then they are converted to an annually accounted basis.
(a) Underwriting year syndicate reserves
Underwriting year syndicate reserves are prepared on an underwriting year basis and equal the Tier 1 reserves plus any reserve risk
loadings. The intention of such risk loadings is to match areas within each syndicate where the perception is that there is a particularly
high risk that the best estimate reserve may be inadequate. Such areas include, but are not limited to, the following:
•
New classes of business
•
Classes where early development is materially better or worse than expected
•
Classes or events with abnormally skewed claim distributions
•
Claim events or reserving categories with a poorly understood distribution
To ensure consistency in the application of risk loadings, the starting point in their assessment is, where possible, formulaic. The
formulaic risk loadings are adjusted wherever considered either excessive or understated. There may also be additional risk loadings in
respect of risks not covered by the formulaic basis.
The underwriting year syndicate reserves provide the basis for all syndicate results and forecasts.
(b) Annually accounted syndicate reserves
Annually accounted syndicate reserves are the underwriting year syndicate reserves converted to an annually accounted basis, plus
additional loadings. These loadings are entirely formulaic.
The Managing Agent’s Board approves all risk loadings within syndicate reserves.
The assessment of actuarial best estimate reserves is a rolling quarterly process. The underwriting portfolio comprises a number of
heterogeneous business types, each of which the analysis projects to ultimate. Where certain contracts or claim events obscure
development trends, the analysis splits these out for separate review. The application of standard actuarial techniques to the historical
data supports the estimation of ultimate loss ratios. The analysis also draws on external data or market data or non-standard
methodologies where appropriate. Whenever actual development of premiums or claims within a reserving category during a quarter is
materially different from expected development based on the existing methodology, then that methodology is reassessed and, where
appropriate, amended. The analysis takes credit for reinsurance recoveries and provides for the possibility of reinsurer failure.
Reserving risk is controlled by the robust application of actuarial methodologies, stepped sign-off procedures, quarterly tracking of
projected ultimate loss ratios and reassessment of methodologies where appropriate, regular dialogue between actuaries and
practitioners and access to a history of loss data. Finally, explicit risk loadings are applied in respect of the areas of greatest risk within
the reserve assessment.
Although the risk loadings provide important protection against adverse developments in reserves, the degree of subjectivity in the
reserving process, the exposure to unpredictable external influences (e.g. the legal environment) and the quantum of reserves relative to
net tangible assets, mean that reserving remains a significant source of risk to the Syndicate.
INVESTMENT RISK
The Managing Agent’s approach is that investment activities are complementary to the primary underwriting activities of the business and
should not therefore divert or utilise financial resources otherwise available for insurance operations.
The preservation of capital and maintenance of sufficient liquidity to support the business and the enhancement of investment returns,
within a set of defined risk constraints, are at the heart of the financial market risk policies adopted by the Managing Agent.
Investment risk constraints, which quantify the maximum amount of investment risk permitted over a one-year time horizon, are approved
by the Board of Chaucer Holdings PLC, the parent company of the Managing Agent, on an annual basis and are used to derive the
maximum allocation, or risk budget, that can be allocated to each asset class.
14 Syndicate 1084 Annual Report 2010
Managing Agent’s Report
The Managing Agent reviews and amends asset allocations in accordance with investment risk constraints. Due regard is given to the
outlook for each asset class because of changes in market conditions and investment returns. Proposed asset allocations are tested
using stochastic modelling techniques prior to formal adoption.
The Syndicate invests a proportion of funds in fixed income securities managed by professional portfolio managers. Each manager
operates within a defined set of investment guidelines and against an appropriate benchmark.
Interest rate risk
The most significant proportion of risk within the Syndicate’s fixed income portfolio is interest rate risk, which increases as the duration
of each portfolio gets longer. In order to manage this risk duration constraints are set, relative to a benchmark to provide downside
protection for increases in interest rates although no limit is set for the minimum duration of each portfolio enabling managers to switch
to cash or variable rate securities, if considered appropriate.
Currency risk
The Syndicate writes a significant proportion of insurance business in currencies other than sterling, which gives rise to a potential
exposure to currency risk. The Syndicate mitigates this through a policy of matching assets and liabilities by currency.
Equity risk
The Syndicate’s equity investments comprise two small holdings which will mature over the next 12 months.
The actual allocation of Syndicate funds to equities at any point in time is determined and reviewed on a quarterly basis with due regard
given to current market conditions and investment opportunities. It is not anticipated that a significant allocation will be made to equities
in the short term.
Liquidity risk
The Syndicate is subject to calls on cash resources, mainly in respect of claims on insurance business, on a daily basis. The Syndicate
operates and maintains a liquidity risk policy designed to ensure that cash is available to settle liabilities and other obligations when due
without excessive cost to the business.
The liquidity risk policy sets limits for cash required to meet expected cash flows. It includes a contingency funding plan, which details
the process and provisions for liquidating assets and/or raising additional funds required to meet liabilities in extreme circumstances.
Credit risk
The Syndicate holds the majority of its investments in high-quality investment grade securities and money market funds, managed by
external portfolio managers. Investment managers may take credit risk as a tactical enhancement to fixed income returns when suitable
opportunities arise within the risk budget set for each manager. Money market fund managers mitigate credit risk through diversification
and by setting maximum limits for individual counterparties.
OPERATIONAL RISK
This is the risk that errors caused by people, processes, systems or external events lead to losses to the Syndicate. The Managing Agent
seeks to manage this risk through business performance measures and governing procedures which are reviewed through a structured
programme of testing of processes and systems by Internal Audit.
REGULATORY RISK
The Managing Agent is required to comply with the requirements of the Financial Services Authority and Lloyd’s. Lloyd’s requirements
include those imposed on the Lloyd’s market by overseas regulators, particularly in respect of US situs business. Regulatory risk is the
risk of loss or reputational damage owing to a breach of regulatory requirements or failure to respond to regulatory change. The Managing
Agent has a Compliance Officer, who monitors regulatory developments and assesses the impact on agency policy. The Syndicate also
undertakes a compliance-monitoring programme.
Staff matters
The Managing Agent considers its staff to be a key resource and seeks to provide a good working environment for its staff that is
rewarding and safe and complies with appropriate employee legislation. During the year there have been no significant injuries to staff in
the workplace or any significant actions taken by any regulatory bodies with regard to staff matters.
Environmental matters
The Managing Agent does not consider that a business such as a syndicate at Lloyd's has a large adverse impact upon the environment.
As a result the agent does not manage its business by reference to any environmental key performance indicators.
Syndicate 1084 Annual Report 2010 15
Managing Agent’s Report
Directors of the Managing Agent
The Directors set out below held office throughout the year ended 31 December 2010, unless otherwise stated.
R V Deutsch, Non-executive Chairman (appointed 1 January 2010)
K Barber, Practice Head - UK Insurance (resigned 12 January 2011)
B P Bartell, Chief Underwriting Officer
D C Bendle, Operations Director (resigned 18 January 2011)
G C Butterworth, Director - Risk Officer
M C Carrillo, Finance Director (appointed 18 May 2010)
T J Carroll, Non-executive Director (appointed 4 August 2010)
M J Cox, Non-executive Director (resigned 1 October 2010)
K D Curtis, Chief Finance Officer
J Fowle, Active Underwriter for Chaucer Syndicate 1084 (appointed 11 January 2010)
S J Helson, Director - Third Party Syndicates
D S Mead, Chief Operating Officer (appointed 29 November 2010)
J D Perkins, Director - Group Actuary
R T Scholes, Non-executive Deputy Chairman (appointed 1 January 2010)
C M Stooke, Non-executive Director (appointed 28 September 2010)
R A Stuchbery, Chief Executive Officer
G M Wood, Non-executive Director (appointed 1 September 2010)
Managing Agent’s Company Secretary
D C Turner
Managing Agent’s Registered Office
Plantation Place
30 Fenchurch Street
London EC3M 3AD
Managing Agent’s Registered Number
184915
Syndicate 1084 Active Underwriter
J Fowle
Syndicate Bankers
The custodians of the Syndicate’s investment funds are as follows:
Citibank N.A.
Lloyds TSB
Royal Bank of Canada
Syndicate Investment Managers
Aberdeen Asset Management
Amundi (UK) Limited
GenRe NEAM
Goldman Sachs
State Street
Wellington
Syndicate Auditors
Ernst & Young LLP, London
Directors’ Interests
None of the Directors of the Managing Agent have any participation in the Syndicate’s premium income capacity.
Disclosure of Information to the Auditors
The Directors each confirm that:
•
So far as they are aware, there is no relevant audit information of which the Syndicate's Auditors are unaware, and
•
they have taken all the steps that they ought to have taken as a director in order to make themselves aware of any relevant audit
information and to establish that the Syndicate's Auditors are aware of that information.
Auditors
Ernst and Young LLP has signified its willingness to continue in office as the independent auditor to the Syndicate.
Approved by order of the Board of Chaucer Syndicates Limited
M C Carrillo
Finance Director
17 March 2011
16 Syndicate 1084 Annual Report 2010
Profit and Loss Account for the year ended 31 December 2010
2010
£m
2009
£m
863.5
(153.3)
798.9
(112.0)
710.2
686.9
(78.0)
22.1
(75.5)
5.9
Net change in provision for unearned premiums
(55.9)
(69.6)
Earned premiums, net of reinsurance
654.3
617.3
28.3
44.4
(426.9)
73.9
(395.7)
62.5
(353.0)
(333.2)
(150.5)
58.6
(47.7)
(10.6)
(91.9)
(58.3)
(444.9)
(391.5)
(212.6)
(214.7)
25.1
55.5
28.3
44.4
(28.3)
(44.4)
25.1
55.5
Note
Technical Account – General Business
Gross premiums written
Outward reinsurance premiums
3
Net premiums written
Change in the provision for unearned premiums
Gross amount
Reinsurers’ share
Allocated investment return transferred from the Non-Technical Account
15
15
9
Claims incurred, net of reinsurance
Claims Paid
Gross amount
Reinsurers’ share
15
15
Net claims paid
Change in the provision for claims
Gross amount
Reinsurers’ share
Net change in the provision for claims
Claims incurred, net of reinsurance
Net operating expenses
3, 5
Balance on the Technical Account – General Business
Non-Technical Account
Investment income
9
Allocated investment return transferred to the General Business Technical Account
Profit for the financial year
14
All the amounts above are in respect of continuing operations.
There were no unrecognised gains and losses relating to the current or preceding year other than those included in the Profit and Loss
Account. Therefore, no Statement of Total Recognised Gains and Losses has been prepared.
Syndicate 1084 Annual Report 2010 17
Balance Sheet at 31 December 2010
Note
2010
£m
2009
£m
Assets
Investments
Financial investments
11
946.6
820.8
Deposits with ceding undertakings
17
5.2
5.0
15
15
43.2
247.0
21.1
185.7
290.2
206.8
110.6
115.4
5.7
68.6
115.6
13.6
231.7
197.8
27.5
50.0
19.5
36.3
77.5
55.8
104.0
8.9
83.6
7.0
112.9
90.6
1,664.1
1,376.8
14
(20.2)
(12.5)
15
15
445.0
1,129.9
367.0
964.1
1,574.9
1,331.1
10.9
80.1
7.7
3.5
46.8
3.5
98.7
53.8
10.7
4.4
1,664.1
1,376.8
Reinsurers’ share of technical provisions
Provision for unearned premiums
Claims outstanding
Debtors
Debtors arising out of direct insurance operations - intermediaries
Debtors arising out of reinsurance operations
Other debtors
12
Other assets
Cash at bank and in hand
Other
17
13, 17
Prepayments and accrued income
Deferred acquisition costs
Other prepayments and accrued Income
Total assets
Liabilities
Capital and reserves
Members’ balances
Technical provisions
Provision for unearned premiums
Claims outstanding
Creditors
Creditors arising out of direct insurance operations - intermediaries
Creditors arising out of reinsurance operations
Other creditors
Accruals and deferred income
Total liabilities
The financial statements were approved by the Board of Chaucer Syndicates Limited on 17 March 2011 and signed on its behalf by:
M C Carrillo
Finance Director
18 Syndicate 1084 Annual Report 2010
Statement of Cash Flows for the year ended 31 December 2010
Note
2010
£m
2009
£m
25.1
(2.9)
160.4
(56.2)
51.2
1.6
55.5
26.3
77.3
1.0
(31.3)
(0.8)
Reconciliation of operating profit to net cash inflow from operating activities
Operating profit on ordinary activities
Changes in market value and exchange rates
Increase in net technical provisions
(Increase) / decrease in debtors
Increase / (decrease) in creditors
Movement in members’ balance in respect tax, members’ agent’s fees and other
16, 17
Net cash inflow from operating activities
179.2
128.0
(34.4)
8.1
16, 17
144.8
136.1
Increase / (decrease) in cash holdings
Increase in overseas deposits
Net portfolio investments
16, 17
16, 17
16, 17, 18
7.7
13.0
124.1
(201.7)
4.0
333.8
Net investment of cash flows
16, 17
144.8
136.1
Transfer to members in respect of underwriting participations
14
Cash flows funded/invested as follows:
Syndicate 1084 Annual Report 2010 19
Notes to the Accounts for the year ended 31 December 2010
1. Basis of preparation
These accounts have been prepared in accordance with the Insurance Accounts Directive (Lloyd’s Syndicate and Aggregate Accounts)
Regulations 2008, and applicable law and Accounting Standards in the United Kingdom. They comply with the Statement of
Recommended Practice on Accounting for Insurance Business issued in December 2005 by the Association of British Insurers (as
amended in December 2006), except that exchange differences are dealt with in the Technical Account as there are no non-technical
items.
2. Accounting policies
PREMIUMS WRITTEN
Premiums written comprise premiums on contracts incepted during the financial year as well as adjustments made in the year to
premiums written in prior accounting periods. Premiums are shown gross of brokerage payable and exclude taxes and duties levied on
them. Estimates are made for pipeline premiums, representing amounts due to the Syndicate not yet notified.
UNEARNED PREMIUMS
Written premiums are recognised as earned according to the risk profile of the policy. Unearned premiums represent the proportion of
premiums written that relate to unexpired terms of policies in force at the balance sheet date, calculated on the basis of established
earnings patterns or time apportionment as appropriate.
REINSURANCE PREMIUMS CEDED
Outwards reinsurance premiums are accounted for in the same accounting period as the premiums for the related direct or inwards
business being reinsured.
CLAIMS PROVISIONS AND RELATED RECOVERIES
Gross claims incurred comprise the estimated cost of all claims occurring during the year, whether reported or not, including related direct
and indirect claims handling costs and adjustments to claims outstanding from previous years.
The provision for claims outstanding is assessed on an individual case basis and is based on the estimated ultimate cost of all claims
notified but not settled by the balance sheet date, together with the provision for related claims handling costs. The provision also
includes the estimated cost of claims incurred but not reported (IBNR) at the balance sheet date based on statistical methods.
These methods generally involve projecting from past experience the development of claims over time to form a view of the likely ultimate
claims to be experienced for more recent underwriting, having regard to variations in the business accepted and the underlying terms and
conditions. For the most recent years, where a high degree of volatility arises from projections, estimates may be based in part on output
from rating and other models of the business accepted and assessments of underwriting conditions. The amount of salvage and
subrogation recoveries is separately identified and, where material, reported as an asset.
The reinsurers’ share of provisions for claims is based on the amounts of outstanding claims and projections for IBNR, net of estimated
irrecoverable amounts, having regard to the reinsurance programme in place for the class of business, the claims experience for the year
and the current security rating of the reinsurance companies involved. A number of statistical methods are used to assist in making these
estimates.
The two most critical assumptions as regards claims provisions are that the past is a reasonable predictor of the likely level of claims
development and the rating and other models used for current business are fair reflections of the likely level of ultimate claims to be
incurred.
The Directors consider that the provisions for gross claims and related reinsurance recoveries are fairly stated on the basis of the
information currently available to them. However, the ultimate liability will vary as a result of subsequent information and events and this
may result in significant adjustments to the amounts provided. Adjustments to the amounts of claims provisions established in prior years
are reflected in the accounts for the period in which the adjustments are made. The methods used, and the estimates made, are reviewed
regularly.
UNEXPIRED RISKS PROVISION
A provision for unexpired risks is made where claims and related expenses arising after the end of the financial period in respect of
contracts concluded before that date are expected to exceed the unearned premiums and premiums receivable under these contracts,
after the deduction of any acquisition costs deferred.
The provision for unexpired risks is calculated by reference to classes of business which are managed together, after taking into account
relevant investment return.
DEFERRED ACQUISITION COSTS
Acquisition costs, which comprise commission and other costs related to the acquisition of new insurance contracts, are deferred to the
extent that they are attributable to premiums unearned at the balance sheet date.
20 Syndicate 1084 Annual Report 2010
Notes to the Accounts for the year ended 31 December 2010
NET OPERATING EXPENSES
Net operating expenses are recognised on an accruals basis. These comprise the Syndicate’s operating expenses such as remuneration,
office and administrative costs, acquisition costs, Managing Agent costs, the costs of membership of Lloyd’s and other expenses
attributable to the Syndicate’s underwriting.
CASH AT BANK AND IN HAND
Cash at bank and in hand on the balance sheet represent cash balances and money market deposits lodged with banks.
FOREIGN CURRENCIES
Monetary transactions are translated at rates of exchange prevailing at the date of the transaction or average rates where appropriate.
Differences resulting from the retranslation on the opening net assets and the results for the year have been taken to reserves. Monetary
assets and liabilities are translated at the closing rate of exchange and any exchange differences arising from the change in rates of
exchange are recognised in the income statement.
Non-monetary transactions, assets and liabilities, including deferred acquisition costs and unearned premiums, are translated at rates of
exchange prevailing at the date of the transaction or average rates where appropriate.
The rates of exchange used to translate monetary balances at the period end in foreign currencies into sterling are as follows:
31 December
2010
31 December
2009
1.57
1.56
1.17
1.61
1.69
1.13
US Dollars
Canadian Dollars
Euros
INVESTMENTS
Investments are stated at current value at the balance sheet date. For this purpose listed investments are stated at market value (bid
price) and deposits with credit institutions and overseas deposits are stated at cost. Unlisted investments for which a market exists are
stated at the average price at which they are traded on the balance sheet date or the last trading day before that date.
INVESTMENT RETURN
Investment return comprises all investment income, realised investment gains and losses and movements in unrealised gains and losses,
net of investment expenses, charges and interest.
Realised gains and losses on investments carried at market value are calculated as the difference between sale proceeds and purchase
price. Unrealised gains and losses on investments represent the difference between the valuation at the balance sheet date and their
valuation at the previous balance sheet date, or purchase price, if acquired during the year, together with the reversal of unrealised gains
and losses recognised in earlier accounting periods in respect of investment disposals in the current period.
Investment return is initially recorded in the Non-Technical Account. A transfer is made from the Non-Technical Account to the General
Business Technical Account. Investment return has been wholly allocated to the Technical Account as all investments relate to the
Technical Account.
TAXATION
Under Schedule 19 of the Finance Act 1993 managing agents are not required to deduct basic rate income tax from trading income. In
addition, all UK basic rate income tax deducted from syndicate investment income is recoverable by managing agents and consequently
the distribution made to members or their members’ agent is gross of tax.
No provision has been made for any United States Federal Income Tax payable on underwriting results or investment earning. Any
payments on account made by the Syndicate during the year are included in the balance sheet under the heading ’Other debtors’.
No provision has been made for any overseas tax payable by members on underwriting results.
PENSION COSTS
Chaucer Syndicates Limited operates a defined benefit and a defined contribution scheme. Pension contributions relating to Syndicate
staff are charged to the Syndicate and included within net operating expenses.
PROFIT COMMISSION
There is no profit commission payable for the 2008 and prior years of account. For the 2009 and 2010 years of account profit commission
is to be charged by the Managing Agent at a rate of 15% of the profit, on a year of account basis. This is charged to the Syndicate as
incurred but does not become payable until after the appropriate year of account closes, normally at 36 months.
Syndicate 1084 Annual Report 2010 21
Notes to the Accounts for the year ended 31 December 2010
3. Segmental analysis
An analysis of the underwriting result before investment return is set out below:
Gross 1
operating Reinsurance
expenses
balance
£m
£m
Gross
premiums
written
£m
Gross
premiums
earned
£m
Gross
claims
incurred
£m
Total
£m
Net
technical
provisions
£m
0.4
69.9
113.8
41.6
94.2
69.9
32.0
22.0
0.4
58.0
113.5
39.0
77.6
67.9
27.9
21.7
0.9
(36.9)
(97.9)
(26.6)
(58.4)
(43.8)
(33.0)
(3.9)
(0.1)
(13.7)
(27.5)
(11.3)
(31.6)
(21.2)
(4.6)
(6.3)
(0.4)
(3.9)
(2.2)
(2.5)
16.1
(4.3)
0.2
(2.7)
0.8
3.5
(14.1)
(1.4)
3.7
(1.4)
(9.5)
8.8
3.4
86.3
165.8
55.3
128.4
86.4
155.6
26.6
443.8
406.0
(299.6)
(116.3)
0.3
(9.6)
707.8
419.7
379.5
(277.8)
(96.3)
1.0
6.4
576.9
863.5
785.5
(577.4)
(212.6)
1.3
(3.2)
1,284.7
3.3
40.9
127.0
45.9
53.4
72.6
49.4
30.5
3.4
39.5
112.5
39.4
50.7
69.0
45.3
30.1
(3.3)
(30.9)
(89.7)
(25.8)
(17.6)
(31.5)
(44.2)
(70.1)
(1.2)
(9.7)
(28.1)
(13.6)
(16.7)
(19.5)
(13.3)
(10.3)
(0.2)
(7.7)
(0.8)
(1.7)
(6.6)
(9.8)
4.0
9.5
(1.3)
(8.8)
(6.1)
(1.7)
9.8
8.2
(8.2)
(40.7)
4.9
68.1
157.4
60.9
91.1
81.1
149.4
49.5
423.0
389.9
(313.1)
(112.4)
(13.3)
(48.8)
662.4
375.9
333.5
(130.3)
(102.3)
(40.9)
59.9
461.9
798.9
723.4
(443.4)
(214.7)
(54.2)
11.1
1,124.3
2010
Direct insurance
Accident and health
Motor (third party liability)
Motor (other classes)
Marine, aviation and transport
Energy
Fire and other damage to property
Third party liability
Miscellaneous
Reinsurance
2009
Direct insurance
Accident and health
Motor (third party liability)
Motor (other classes)
Marine, aviation and transport
Energy
Fire and other damage to property
Third party liability
Miscellaneous
Reinsurance
1
Gross operating expenses are the same as net operating expenses shown in the profit and loss account as no commissions in respect of outward reinsurance were received
and set off in arriving at the net expenses for 2010 and 2009
All premiums were concluded in the UK.
Commission on direct insurance, gross premiums during 2010 was £87.0m (2009 £82.1m).
The geographical analysis of gross premiums written by reference to the situs of the risk is as follows:
2010
£m
2009
£m
UK
Other EU countries
US
Other
242.2
48.6
182.7
390.0
229.4
43.1
174.7
351.7
Gross premiums written
863.5
798.9
22 Syndicate 1084 Annual Report 2010
Notes to the Accounts for the year ended 31 December 2010
4. Prior period reserves
During the year the Syndicate released £32.3m of technical reserves in respect of prior periods (2009 £34.3m), arising predominately from
the Energy and Property Divisions (2009 primarily from the Marine, Energy, Property and Specialist Lines Divisions). These releases were due
to satisfactory claims development, offset by increases to UK motor reserves in response to further credit hire and multi claimant costs.
5. Net operating expenses
Acquisition costs
- brokerage and commission
- other
Change in deferred acquisition costs
Administrative expenses
(Profit) / loss on exchange
2010
£m
2009
£m
174.5
23.4
(20.3)
46.1
(11.1)
161.1
20.0
(15.8)
35.5
13.9
212.6
214.7
19.8
12.4
Administrative expenses include:
Members’ standard personal expenses (Lloyd’s subscriptions, New Central
Fund contributions, managing agent’s fees and profit commission)
Further detail on the impact of foreign currency exchange rate fluctuation on the value of technical provisions is provided in note 15.
6. Auditors’ remuneration
Audit of the syndicate annual accounts
Other services pursuant to Regulations and Lloyd’s Byelaws
Audit of the Managing Agent’s annual accounts
2010
£m
2009
£m
0.03
0.11
0.02
0.03
0.11
0.02
0.16
0.16
7. Staff numbers and costs
The Managing Agent employs all staff and recharges the following amounts to the Syndicate in respect of salary costs:
Wages and salaries
Social security costs
Other pension costs
Other
2010
£m
2009
£m
25.8
2.5
3.5
1.4
21.7
2.2
2.9
0.9
33.2
27.7
The average number of employees employed by the Managing Agent but working for the Syndicate during the year was as follows:
Administration and finance
Underwriting
Claims
Investments
Other
2010
Number
2009
Number
156
201
157
1
31
139
189
132
1
37
546
498
Syndicate 1084 Annual Report 2010 23
Notes to the Accounts for the year ended 31 December 2010
8. Emoluments of the Directors of the Managing Agent
The Directors of Chaucer Syndicates Limited received the following aggregate remuneration charged to the Syndicate and included within
net operating expenses:
2010
£m
2009
£m
0.5
0.1
0.6
0.3
0.6
0.9
2010
£m
2009
£m
26.7
45.2
15.2
64.4
71.9
79.6
Realised losses on investments
Investment expenses and charges
(42.9)
(0.7)
(34.8)
(0.4)
Total investment return
28.3
44.4
Directors of Chaucer Syndicates Limited
Active Underwriter
9. Investment return
Investment income
Income from investments
Realised gains on investments
10. Calendar year investment yield
The average amount of syndicate funds available for investment and the calendar year investment return and yield were as follows:
Average funds
Investment return (net of expenses)
Calendar year investment yield
2010
£m
2009
£m
933.6
808.7
28.3
3.0 %
44.4
5.5 %
Average funds available for investment by fund
Sterling
United States Dollars
Canadian Dollars
Analysis of calendar year investment yield by fund
Sterling
United States Dollars
Canadian Dollars
312.9
577.2
43.5
263.7
507.4
37.6
%
%
2.8
3.5
0.7
3.3
7.1
0.6
Average fund is the average of bank balances, overseas deposits, inter-syndicate loans and investments held at the end of each month during
the calendar year. For this purpose, investments are revalued at month-end market prices, which include accrued income where appropriate.
24 Syndicate 1084 Annual Report 2010
Notes to the Accounts for the year ended 31 December 2010
11. Financial investments
Shares and other variable yield securities and unit trusts
Debt securities and other fixed income securities
Deposits with credit institutions
Equities
Hedge funds
Bonds
Deposits with credit institutions
Money market funds
Cost
£m
2010
Market value
£m
Cost
£m
2009
Market value
£m
279.1
440.2
236.2
274.8
435.6
236.2
281.8
441.4
121.3
257.7
441.8
121.3
955.5
946.6
844.5
820.8
4.5
5.6
481.4
236.3
227.7
3.1
2.7
476.8
236.3
227.7
4.5
35.0
466.3
124.3
214.4
2.5
37.8
467.0
120.2
193.3
955.5
946.6
844.5
820.8
Shares and other variable yield securities and unit trusts include £2.7m of investments (cost £5.6m) in two unlisted fixed income hedge
funds (2009 £11.7m of investments at £11.7m cost). The net asset value of the fund is provided by the fund administrator. The net asset
value is formally reported on a monthly basis and represents the price at which subscriptions and withdrawals from the fund may be
made.
Hedge fund redemption proceeds totalled £34.0m in the year, resulting in outstanding balances of £2.7m in respect of two fixed income
hedge funds which continue to make distributions as assets are liquidated.
12. Other debtors
Inter-syndicate loan (see note 19)
Other debtors
2010
£m
2009
£m
5.2
0.5
6.2
7.4
5.7
13.6
13. Other assets
Other assets comprise overseas deposits which are lodged as a condition of conducting underwriting business in certain countries. The funds are required
in order to protect policyholders and enable the Syndicate to operate in those markets. The Syndicate has only restricted access to these funds and no
influence over their investment.
14. Reconciliation of members’ balances
2010
£m
2009
£m
Members’ balances brought forward at 1 January
(12.5)
(75.2)
Profit for the financial year
(Payments of profit to) / cash calls made from members’ personal reserve funds
Movement in members’ balance in respect of tax, members’ agent’s fees and other
25.1
(34.4)
1.6
55.5
8.1
(0.9)
Members’ balances carried forward at 31 December
(20.2)
(12.5)
Members participate on syndicates by reference to years of account and their ultimate result, assets and liabilities are assessed with reference
to policies incepting in that year of account in respect of their membership of a particular year.
Syndicate 1084 Annual Report 2010 25
Notes to the Accounts for the year ended 31 December 2010
15. Technical reserves
Provisions for
unearned
premiums
£m
Claims
outstanding
£m
Total
£m
At 1 January 2010
Exchange adjustments
Claims paid in year
Movement in provision
367.0
78.0
964.1
15.3
(426.9)
577.4
1,331.1
15.3
(426.9)
655.4
At 31 December 2010
445.0
1,129.9
1,574.9
Gross
Reinsurance
At 1 January 2010
Exchange adjustment
Reinsurance recoveries in the year
Movement in provision
21.1
22.1
185.7
2.7
(73.9)
132.5
206.8
2.7
(73.9)
154.6
At 31 December 2010
43.2
247.0
290.2
At 31 December 2010
401.8
882.9
1,284.7
At 31 December 2009
345.9
778.4
1,124.3
Net technical provisions
2010 events
Included within the technical provisions as at 31 December 2010 are reserves for:
•
Bangkok political violence/riots between March and May 2010
•
Earthquake losses, including Chile in February and New Zealand in September 2010
•
Deepwater Horizon oil rig blowout in April 2010
•
Flood losses in Australia during December 2010
The development of other significant loss events reported in 2009, including the fraud related to Bernhard L Madoff, political risk and
trade credit account losses and fire loss at the West Atlas Rig developed in line with expectations during 2010.
Natural Catastrophe Events – Chile and New Zealand earthquakes and Australia floods
There were a number of significant earthquakes during 2010. The two largest of these (with the most material impact to the Syndicate)
were in Chile’s Maule region on 27 February and in Christchurch (Darfield), New Zealand on 4 September 2010. The Chile earthquake
measured 8.8 on the Richter scale and was approximately 100km north-east of the second largest city, Concepción. The New Zealand
earthquake measured 7.1 on the Richter scale. Estimates of the eventual total insured cost of both events are subject to uncertainty at
the end of 2010.
The Syndicate has reserved the Chile earthquake at US$28.6m net of reinsurance and the New Zealand earthquake at US$24.3m, with
the majority of losses for both events being in the Property Division.
There was also extensive flooding in the state of Queensland, Australia during December 2010 (Rockhampton) and January 2011
(Toowoomba, Ipswich and Brisbane). The Syndicate has included a provision of £5.1m net of reinsurance within technical provisions for
event losses up to 31 December 2010. The eventual total insured cost of the flooding is subject to uncertainty due to the size of the area
affected, the difficulty of assessing damage, issues around policy wordings, hours clauses, extent and type of flood peril coverage offered
and categorisation of the flooding in different locations into individual events.
Deepwater Ho rizon
A blowout of BP’s Macondo oil well in the Gulf of Mexico on 20 April 2010 resulted in an explosion on the Transocean Deepwater Horizon
oil drilling rig. This event has impacted both the Marine and Energy Divisions. These have exposure to the resulting rig damage and
potential workers’ liability and pollution/cleanup costs. The Syndicate has reviewed a number of loss scenarios for the Energy Division,
based on a US$1.5 billion loss to the market and assessed the net of reinsurance loss to the Syndicate at US$20.2m (including inwards
and outwards reinstatement premiums).
26 Syndicate 1084 Annual Report 2010
Notes to the Accounts for the year ended 31 December 2010
Bangkok political violence
The Syndicate has exposure to the riots in Bangkok that took place between March and May 2010, caused by civil unrest in the Thai
capital and which caused significant damage to a number of commercial buildings.
The Syndicate mapped the areas of unrest with the corresponding damage, including a detailed review of loss adjusters’ reports. This
was cross referenced with in-house exposure data and specific reserves were assigned to each individual assured. The Syndicate has
seen a number of claims from this event and currently has reserved the losses at £23.0m gross, with outwards reinsurance recoveries of
£16.9m. This gives an overall net of reinsurance loss to the Marine Division of £8.8m, allowing for reinstatement premiums. Given the size
of the loss, there is uncertainty regarding the eventual outcome.
£000
Estimated ultimate gross loss
Chile earthquake
New Zealand earthquake 1
Australia floods (event losses up to 31 December 2010) 1
Deepwater Horizon
Bangkok political violence
23.7
15.5
5.9
60.8
23.0
128.9
Estimated ultimate net loss (after reinstatement premiums and reinsurance)
Chile earthquake
New Zealand earthquake 1
Australia floods (event losses up to 31 December 2010) 1
Deepwater Horizon
Bangkok political violence
18.2
15.5
5.1
16.1
8.8
63.7
1
The loss estimates for these losses have been updated since those previously announced (see note 21)
Figures are prepared at rates of exchange in place at the end of the year.
Reinsurance
The Syndicate's reinsurance policies protecting the losses in the above table are with reinsurers rated A (strong) or better by Standard &
Poor's, as analysed below:
Rating bands (as at 12 February 2010)
Lloyd’s syndicates (A+)
AA
A (excluding Lloyd’s syndicates)
Chile
%
New Zealand
%
Australia
%
Deepwater
%
Bangkok
%
18.0
45.4
36.6
nil
nil
nil
62.6
37.4
16.9
26.6
56.5
60.3
39.7
100.0
nil
100.0
100.0
100.0
Syndicate 1084 Annual Report 2010 27
Notes to the Accounts for the year ended 31 December 2010
16. Movement in cash, opening and closing portfolio investments net of financing
2010
£m
2009
£m
7.7
(201.7)
Increase in overseas deposits
Increase in portfolio investments (note 17)
13.0
124.1
4.0
333.8
Movement arising from cash flows
144.8
136.1
2.9
(26.3)
Total movement in portfolio investments net of financing
147.7
109.8
Portfolio at 1 January
881.6
771.8
1,029.3
881.6
Net cash inflow / (outflow) for the year
Cash flow
Changes in market value and exchange rates
Portfolio at 31 December
17. Movement in cash, portfolio investments and financing
At
1 January
2010
£m
Cash at bank and in hand
Overseas deposits
Changes to
market value
Cash flow and currencies
£m
£m
At
31 December
2010
£m
19.5
36.3
7.7
13.0
0.3
0.7
27.5
50.0
55.8
20.7
1.0
77.5
257.7
441.8
121.3
5.0
5.7
5.3
113.1
-
11.4
(11.5)
1.8
0.2
274.8
435.6
236.2
5.2
825.8
124.1
1.9
951.8
881.6
144.8
2.9
1,029.3
Portfolio Investments
Shares and other variable yield securities
Debt securities and other fixed income securities
Deposits with credit institutions
Deposits with ceding undertakings
Total cash, portfolio investments and financing
18. Net cash outflow on portfolio investments
2010
£m
2009
£m
Purchase of shares and other variable yield securities and unit trusts
Purchase of debt securities and other fixed income securities
Increase in loans
Decrease in deposits with ceding undertakings
Sale of shares and other variable yield securities and unit trusts
Sale of debt securities and other fixed income securities
Decrease in deposits with credit institutions
(810.6)
(281.8)
804.9
276.5
(113.1)
(217.1)
(819.1)
4.0
(3.6)
284.4
529.0
(111.4)
Net cash outflow on portfolio investments
(124.1)
(333.8)
28 Syndicate 1084 Annual Report 2010
Notes to the Accounts for the year ended 31 December 2010
19. Related parties
Chaucer Syndicates Limited, a fully owned subsidiary of Chaucer Holdings PLC, is the Managing Agent of the Syndicate. Chaucer
Syndicates Limited has charged the Syndicate with the following expenses during the year:
Managing Agent fees
Expenses recharged
Balance due to Chaucer Syndicates Limited at 31 December
2010
£m
2009
£m
7.1
30.6
2.3
6.3
36.0
1.1
A subsidiary of Chaucer Holdings PLC supports the underwriting capacity of Syndicate 1084 as follows:
Chaucer Corporate Capital (No. 2) Limited
2010
£m
2009
£m
Year of account
2008
£m
713.0
602.0
445.0
Chaucer Latin America S.A, a subsidiary of Chaucer Holdings PLC, provides underwriting services to Syndicate 1084. The Syndicate has
incurred the following expense from Chaucer Latin America S.A during the year:
Fees paid to Chaucer Latin America S.A
Balance due to Chaucer Latin America S.A at 31 December 2010
2010
£m
2009
£m
0.2
0.2
-
Chaucer Underwriting A/S, a subsidiary of Chaucer Holdings PLC, provides underwriting services to Syndicate 1084. The Syndicate has
incurred the following expense from Chaucer Underwriting A/S during the year:
Commissions paid to Chaucer Underwriting A/S
Balance due to Chaucer Underwriting A/S at 31 December 2010
2010
£m
2009
£m
1.2
2.6
1.2
1.9
Chaucer Singapore PTE, a subsidiary of Chaucer Holdings PLC, provides underwriting services to Syndicate 1084. The Syndicate has
incurred the following expense from Chaucer Singapore PTE during the year:
Fees paid to Chaucer Singapore PTE
Balance due to Chaucer Singapore PTE at 31 December 2010
2010
£m
2009
£m
1.5
0.6
1.5
0.4
Chaucer Insurance Services Limited (CISL), a fellow subsidiary and related party of Chaucer Syndicates Limited, is also a regulated
insurance intermediary. The Syndicate has incurred the following expense from CISL during the year:
Commissions paid to CISL
Marketing contribution to CISL
Balance due from CISL at 31 December 2010
2010
£m
2009
£m
1.0
0.4
2.0
0.7
0.8
1.1
Syndicate 1084 Annual Report 2010 29
Notes to the Accounts for the year ended 31 December 2010
Chaucer Syndicates Limited, the managing agency of the Syndicate, is also the managing agency for Syndicates 1176 and 4000.
The Syndicate earned £14,000 (2009 nil) of interest income from Syndicate 1176 during the year in relation to a US$3m loan facility which
was drawn upon during the year, accruing interest at 2% above the LIBOR average US rate. This balance remained outstanding at
31 December 2010 (2009 nil). We expect this balance to be repaid no later than 30 June 2011.
The Syndicate earned the following interest income from Syndicate 4000 during the year in relation to an initial US$14m loan facility which
was drawn upon during the year, accruing interest at 2% above the LIBOR average US rate. On 29 September 2010 this was revised to
a US$5m loan facility, accruing interest at 2.5% above LIBOR average US rate. In both cases any unutilised facility is charged at 0.5%
above the LIBOR average US rate. We expect the loan to be repaid no later than 30 June 2011.
Interest income
Year-end balance due from Syndicate 4000 at 31 December
2010
£m
2009
£m
0.2
5.2
-
20. Funds at Lloyd’s
Every member is required to hold capital at Lloyd’s, which is held in trust and known as Funds at Lloyd’s (FAL). These funds are intended
primarily to cover circumstances where syndicate assets prove insufficient to meet participating members’ underwriting liabilities.
The level of FAL that Lloyd’s requires a member to maintain is determined by Lloyd’s, based on FSA requirements and resource criteria.
FAL has regard to a number of factors, including the nature and amount of risk to be underwritten by the member and an assessment of
the reserving risk in respect of business that has been underwritten. Since FAL is not under the management of the Managing Agent, no
amount has been shown in these accounts by way of such capital resources. However, the Managing Agent is able to make a call on the
members’ FAL to meet liquidity requirements or to settle losses.
21. Subsequent events
In January 2011 there was further flooding in the state of Queensland, Australia, in February 2011 Christchurch, New Zealand
experienced an earthquake measuring 6.3 on the Richter scale and in March 2011 there was an earthquake measuring 9 on the Richter
scale and resulting tsunami that affected the north-east of Japan. The insured costs of these 2011 events are non-adjusting events and
have not been reflected in the financial statements of the Syndicate for the year ended 31 December 2010. The Syndicate’s initial loss
estimates, based on an assumed industry loss of NZ$12bn, are approximately £23.0m for the February 2011 New Zealand earthquake
and £9.6m for the January 2011 Australian floods. The Syndicate is currently assessing its exposure to the recent earthquake and
tsunami in Japan. However, it is currently too early to provide a loss estimate.
Chaucer Holdings PLC has previously reported that the Syndicate’s combined estimated total loss from the 2010 New Zealand
earthquake and Australian floods would be approximately £28.9m. However, following further assessment, the Syndicate has updated
this estimate to £20.6m, as reported in note 15.
The Managing Agent considers the total technical provisions established as at 31 December 2010 are still within the range of expectation
established at 31 December 2010.
22. Ultimate parent company and parent undertaking of larger group of which the Syndicate is a member
The largest and the smallest group of undertakings for which group accounts are prepared and the results of the syndicates are included,
is Chaucer Holdings PLC, a company incorporated in Great Britain. A copy of the most recent consolidated accounts is available from
the Registered Office of Chaucer Holdings PLC at Plantation Place, 30 Fenchurch Street, London, EC3M 3AD.
30 Syndicate 1084 Annual Report 2010
Statement of M anaging Agent’s Responsibilities
The Managing Agent is responsible for preparing the Syndicate annual report and annual accounts in accordance with applicable law and
regulations.
The Insurance Accounts Directive (Lloyd’s Syndicate and Aggregate Accounts) Regulations 2008 require the managing agent to prepare
syndicate annual accounts at 31 December each year in accordance with United Kingdom Generally Accepted Accounting Practice
(United Kingdom Accounting Standards and applicable law). The annual accounts are required by law to give a true and fair view of the
state of affairs of the Syndicate as at that date and of its profit or loss for that year.
In preparing the Syndicate annual accounts, the Managing Agent is required to:
1. select suitable accounting policies and then apply them consistently;
2. make judgements and estimates that are reasonable and prudent;
3. state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in
the annual accounts; and
4. prepare the annual accounts on the basis that the Syndicate will continue to write future business unless it is inappropriate to presume
that the Syndicate will do so.
The Managing Agent is responsible for keeping proper accounting records, which disclose with reasonable accuracy at any time the
financial position of the Syndicate and enable it to ensure that the Syndicate annual accounts comply with the 2008 Regulations. It is also
responsible for safeguarding the assets of the Syndicate and hence for taking reasonable steps for prevention and detection of fraud and
other irregularities.
The Managing Agent is responsible for the maintenance and integrity of the corporate and financial information included on the business’
website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation
in other jurisdictions.
Syndicate 1084 Annual Report 2010 31
Independent Auditors' Report to the Members of Syndicate 1084
We have audited the syndicate annual accounts of Syndicate 1084 for the year ended 31 December 2010 which comprise the Profit and
Loss Account, the Balance Sheet, the Statement of Cash Flows and the related notes 1 to 22. The financial reporting framework that has
been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted
Accounting Practice).
This report is made solely to the syndicate’s members, as a body, in accordance with The Insurance Accounts Directive (Lloyd’s Syndicate
and Aggregate Accounts) Regulations 2008. Our audit work has been undertaken so that we might state to the syndicate’s members
those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we
do not accept or assume responsibility to anyone other than the syndicate’s members as a body, for our audit work, for this report, or
for the opinions we have formed.
Respective responsibilities of the managing agent and auditors
As explained more fully in the Statement of Managing Agent’s Responsibilities, the managing agent is responsible for the preparation of
syndicate annual accounts which give a true and fair view. Our responsibility is to audit and express an opinion on the syndicate annual
accounts in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to
comply with the Auditing Practices Board’s Ethical Standards for Auditors.
Scope of the audit of the syndicate annual accounts
An audit involves obtaining evidence about the amounts and disclosures in the annual accounts sufficient to give reasonable assurance
that the annual accounts are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether
the accounting policies are appropriate to the syndicate’s circumstances and have been consistently applied and adequately disclosed;
the reasonableness of significant accounting estimates made by the managing agent; and the overall presentation of the annual accounts.
Opinion on syndicate annual accounts
In our opinion the annual accounts:
•
give a true and fair view of the syndicate’s affairs as at 31 December 2010 and of its profit for the year then ended;
•
have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and
•
have been prepared in accordance with the requirements of The Insurance Accounts Directive (Lloyd’s Syndicate and Aggregate
Accounts) Regulations 2008.
Opinion on other matter prescribed by The Insurance Accounts Directive (Lloyd’s Syndicate and Aggregate Accounts) Regulations 2008
In our opinion the information given in the Managing Agent’s Report for the financial year in which the annual accounts are prepared is
consistent with the annual accounts.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where The Insurance Accounts Directive (Lloyds’s Syndicate and Aggregate
Accounts) Regulations 2008 requires us to report to you, if in our opinion:
•
the managing agent in respect of the syndicate has not kept adequate accounting records; or
•
the syndicate annual accounts are not in agreement with the accounting records; or
•
we have not received all the information and explanations we require for our audit.
Angus Millar
Senior Statutory Auditor
For and on behalf of Ernst & Young LLP, Statutory Auditor, London
17 March 2011
32 Syndicate 1084 Annual Report 2010
Lloyd’s is the world’s leading specialist insurance and reinsurance market.
Lloyd's is the world's leading specialist insurance market, conducting business in over 200 countries and
territories worldwide. Lloyd's brings together a unique concentration of specialist underwriting expertise and
talent, backed by excellent financial ratings which cover the whole market.
As at 31 December 2010, 80 traditional syndicates operate in Lloyd’s, each with its own specialties and areas of expertise. Together, they
interact daily with brokers to create insurance solutions for businesses around the world. Lloyd’s, as at 31 December 2010, insures 94% of FTSE
100 and 97% of Dow Jones industrial average companies. Lloyd’s capital base is diverse and today 85% of Lloyd’s capital comes from
corporate bodies – primarily the international insurance industry.
Lloyd’s enjoys strong financial security and every policy is supported by an A (excellent) rating from the rating agency A.M. Best, A+ (strong)
rating from Standard & Poor’s and A+ (strong) rating from Fitch Ratings.
Lloyd's is regulated by the Financial Services Authority.
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Chaucer Syndicates Limited
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