LLM2200 - Syndicate accounts: format of three year accounts up to 2004
The underwriting year accounts prepared under three year accounting are essentially the technical account of the annual venture. There was one underwriting year account included in the Accounts for each syndicate year open during the accounts year. The balance on each underwriting account is taken to the corresponding year of account balance on the balance sheet. The underwriting account for the third year formed the basis of the taxable profit of the syndicate (third and later years for syndicates in run-off).
The underwriting account shows syndicate allocated capacity, which is a figure, expressed in sterling, which represents the maximum premium income the syndicate is permitted to receive. In fact it can receive premium income above this figure, provided that some of the liabilities are reinsured, so that the net premium income does not exceed the capacity.
The next entry is the actual premium income received, both gross and net of reinsurance premiums paid. Other items are gross and net claims paid, expenses, investment income and, in the third or later year of a syndicate, either a reinsurance to close, or an estimate of future liabilities.
The accounts of a syndicate contained three of these underwriting accounts, showing the development (for example) of the 1998 year in year 3, the 1999 year in year two, and the 2000 year in year one, in each case with the previous year’s figures shown for comparative purposes.
| - | 1998 YOA | - | - | 1997 YOA |
|---|---|---|---|---|
| £’000 | At 24 months | Change in cal. year | At 36 months | At 36 months |
| Syndicate allocated capacity | 310,257 | - | 310,257 | 311,297 |
| Gross premiums written (net of brokerage) | 118,512 | 5,602 | 124,114 | 209,862 |
| Outward reinsurance premiums | (17,881) | (657) | (18,538) | (21,331) |
| Net premiums | 100,631 | 4,945 | 105,576 | 188,531 |
| RITC received from earlier years of account | 107,058 | (575) | 106,483 | 95,367 |
| Gross claims paid | 43,847 | 36,338 | 80,185 | 95,182 |
| Reinsurers’ share | (6,448) | (2,616) | (9,064) | (4,913) |
| Net claims | 37,399 | 33,722 | 71,121 | 90,269 |
| RITC paid to close the account | - | 115,875 | 115,875 | 107,058 |
| Profit/(loss) on exchange | (9) | (160) | (169) | 1,075 |
| Syndicate operating expenses | (5,340) | (3,090) | (8,430) | (11,595) |
| Balance on technical account | 164,941 | (148,477) | 16,464 | 76,051 |
| Investment income | 4,563 | 8,961 | 13,524 | 17,581 |
| Profit for the closed year of account | 169,504 | (139,516) | 29,988 | 93,632 |
There is only one balance sheet for all syndicate years included in the accounts. The assets and liabilities shown on the balance sheet therefore represent the combined value of the PTF assets held by the managing agent for this syndicate. This reflects the fact that the managing agent generally pools the assets of all open years of the syndicate and then apportions investment income to years of account based on a conventional method (see LLM2210 for the Riesco formula). An exception to the rule that assets and liabilities are pooled is that a separate calculation of each year of account balance is shown on the balance sheet. If a year of account is in profit, the profit balance will be shown as a liability, representing the managing agent’s prospective obligation to distribute the profits to syndicate members. If the year of account is loss-making, the balance will usually be shown as a negative liability rather than as an asset.
| - | 31/12/2000 | 31/12/1999 |
|---|---|---|
| Assets | £’000 | £’000 |
| Financial investments | 238,173 | 272,814 |
| Debtors | 23,931 | 22,731 |
| Other assets | - | - |
| Cash at bank and in hand | 85,544 | 83,206 |
| Overseas deposits | 71,793 | 68,300 |
| Total assets | 419,441 | 447,051 |
| Liabilities | - | - |
| Balance on 1998(1997) closed year of account | 13,794 | 61,797 |
| Balances on open YOAs | - | - |
| 2000(1999) YOA | 23,552 | 31,011 |
| 1999(1998) YOA | 360,558 | 301,962 |
| Creditors | 21,537 | 52,281 |
| Total Liabilities | 419,441 | 447,051 |
The accounts include a number of reports and notes
- Underwriter’s report: reviews the type of business written in each year and the results or forecast results, gives some analysis of the reinsurance arrangements, and may comment on the basis of valuation of liabilities for reinsurance to close (RITC) premiums or Estimated Future Liabilities (EFL) purposes.
- managing agent’s report: gives factual information about the managing agent and syndicate capacity and results.
- investment manager’s report.
- a seven-year summary of syndicate results.
- a disclosure of related party transactions.
- an analysis of the RITC or EFL distinguishing between outstandings, IBNR and the claims handling reserve.
- an analysis of profit and amounts available for distribution by currency.
- the balance on the Technical Account showing the profit or loss on the year of account which has just closed, and also the profit or loss on business reinsured into the account.