Interim Management Statement for the period to 11 May 2011
12 May 2011
The first quarter
of 2011 has seen record catastrophe activity, notably the floods in
Queensland in January, the second Christchurch earthquake in
February, followed closely by the major Japanese earthquake in
March. Before these events the reinsurance market had
continued its overall softening trend. Subsequently,
reinsurance rates have started to improve, significantly in the
more competitive, loss affected territories. Insurance rates
in some markets are also showing early signs of improvement as
market participants respond to inadequate pricing, loss events and
low interest rates.
Underwriting environment
The Group’s gross written premium (before
deduction of brokerage) was up 13.7% for the four months ended 30
April 2011 at £1,095.7 million (30 April 2010: £964.0
million). At constant exchange rates written premium increased by
16.7% (30 April 2010: £938.8 million). Amlin Re Europe
accounted for £78.7 million of this increase following its
start up in October 2010. The underlying increase was £78.2
million. The underlying growth is attributable to new
business within Amlin London, Amlin UK and Amlin Bermuda, offset by
a reduction in income within Amlin Corporate Insurance due to the
non-renewal of poorly performing business, in line with our
identified re-underwriting strategy. Amlin France generated
increased income following its merger with ACI France in
2010.
The average renewal rate decrease for the Group during the first
four months of 2011 was a modest
0.4%(
1), with renewal retention high at 84.6%. This
compares with an average rate decrease of 1.0% for the three months
to 31 March 2010. Performance by division is analysed in the table
below:
|
Gross written premium to 30 April 2011 £ m |
Renewal rate change to 30 April 2011 % |
Renewal rate change to 31 March 2011 % |
Renewal retention ratio to 30 April 2011 % |
Gross written premium to 30 April 2010 £ m |
Renewal rate change to 30 April 2010 % |
Renewal retention ratio to 30 April 2010 % | |
|
Amlin London |
512.1 |
(0.4) |
(1.5) |
85.4 |
488.4 |
(1.4) |
87.9 |
|
Amlin UK |
102.6 |
3.2 |
3.3 |
83.7 |
64.3 |
1.2 |
83.7 |
|
Amlin France |
36.1 |
n/a |
n/a |
84.0 |
19.8 |
n/a |
n/a |
|
Amlin Corporate Insurance |
211.9 |
0.1 |
0.1 |
77.0 |
246.3 |
n/a |
n/a |
|
Amlin Bermuda (Direct) |
154.3 |
(3.6) |
(4.2) |
92.7 |
145.2 |
(2.5) |
92.2 |
|
Amlin Re Europe |
78.7 |
n/a |
n/a |
n/a |
n/a |
n/a |
n/a |
|
Total/average |
1,095.7 |
(0.4) |
(1.0) |
84.6 |
964.0 |
(1.4) |
88.4 |
At the start of the year reinsurance business within Amlin London and Amlin Bermuda continued to come under rating pressure. Overall reinsurance rates fell by 2.1%, with US catastrophe rates falling 4.5% following a second consecutive benign hurricane season. Rates are now showing signs of improvement, particularly in loss affected territories. In the US, with the Atlantic hurricane season approaching and a number of major renewals imminent, the combination of international loss events and loss modelling changes made by a major catastrophe modelling firm is resulting in increasing rates.
Property and Casualty rates have been relatively stable, with an average decrease of 0.6% in the period. Competition in this area has continued to be strong and we remain cautious. Like the reinsurance market, the property market has experienced large loss events through the past 12 months with the tornadoes in the Southern United States being the latest material development. This has driven a return to discipline in the market, with renewal rates on property business slightly firmer on April renewals.
Average rates within our London Marine business were up 1.4%, with marine liability and energy classes witnessing rate increases of 6.6% and 2.7% respectively following the events of 2010. Modest increases were achieved in most other Marine classes.
The trading environment for Amlin UK continues to improve, albeit more slowly than originally anticipated. We have continued to seek opportunities for profitable growth and to position the business to take advantage of the improving trading environment. Increases in fleet motor rates averaged 5.9% in the period. Overall, fleet motor income is up 5.4%, with new business amounting to £6.2 million, net of brokerage. Elsewhere, rates for public liability classes have increased 2.6%, but other liability classes continue to endure pricing pressure. Property rates were broadly flat but recent strategic initiatives, including the purchase of J R Clare in January 2011, have brought new business of £43.2 million.
In Continental Europe, both for ACI and Amlin France, the trading environment remains challenging with limited evidence of improved rating conditions. We continue to concentrate on improving the underwriting performance of ACI’s marine business. This has resulted in the non-renewal of approximately €43.7 million of marine business in the first quarter, where pricing was considered inadequate and historic claims ratios unacceptable. The balance of the portfolio has better historic performance and more acceptable pricing. Improving trends are emerging, although these are at an early stage and it will take further time for actions taken to be fully recognised in the results.
Amlin Re Europe, our new Continental European reinsurance business based in Switzerland, has been extremely well received and has made an excellent start in 2011, writing approximately €91.3 million of gross written premium, ahead of business plan. With the initial growth strain of incurring expenses before the development of earned premium, we do not expect the business to make a material contribution to the Group in 2011. We remain confident of its long term prospects.
The Group remains strongly capitalised to support growth if the market continues to strengthen.
Outwards reinsurance
Reinsurance expenditure in the period to 31 March 2011 was £142.8 million, representing 16.8% of gross written premium (31 March 2010: £149.5 million and 19.9%). The core reinsurance programmes have been renewed, with structures largely unchanged from 2010. The retrocessional programme was restructured in 2010, such that greater retention of the first major catastrophe event is now borne by the Group, but increased cover exists for multiple catastrophe events. As explained in the claims section below, given the scale of catastrophe activity in the year to date, we are now in a position where greater reinsurance recoveries should be made for further material catastrophe events.
Claims and reserves
The period to 31 March 2011 was the worst first quarter on record for catastrophe losses globally (2).
The most significant catastrophe events in the period were the Queensland floods in January and the New Zealand and Japanese earthquakes, which occurred on 22 February and 11 March respectively.
Market loss estimates for the New Zealand earthquake are as much as US$12 billion (3). Little detailed information is available to allow a full analysis of reserve estimates to be made, particularly giving consideration to overlapping damage from the previous Christchurch earthquake in September 2010. Insured market loss estimates for the Japanese earthquake are up to US$39 billion (4) but the scale and extent of the damage remains uncertain.
Consequently our current estimated claims for these events are
subject to uncertainty. Advices to date suggest that the Japanese
earthquake will be towards the top end of our previously published
range and that is where we have reserved. Taken together, our net
reserves for the New Zealand and Japanese earthquakes are
£260 million, in line with our press release of 5 April
2011.
The scale of these losses means that any deterioration in current
New Zealand and Japanese reinsurance loss estimates will be partly
recoverable from our reinsurance programme. In addition, the
structure of the reinsurance programmes for London and Bermuda
means that whilst we remain exposed to catastrophe loss activity,
significantly increased reinsurance protection is available for
future events in 2011.
Net claims from the 2011 Queensland floods, which affected
Brisbane and surrounding territories, are also materially unchanged
from the estimated £15 million disclosed in our 5 April 2011
press release.
ACI suffered an active start to the year with a number of large
property claims in the Netherlands and Belgium. The property
account incurred an additional €8 million of large claims
compared with the equivalent prior year period.
At 31 March 2011, following the normal quarterly review of claims reserves, £17.3 million was released from reserves across the Group (31 March 2010: £25.4 million).
Investment returns
The
Group's investment return for the three month period to 31 March
2011 is estimated to be 0.6%, with average funds under management
of £4.2 billion. In this period bonds returned 0.3%, LIBOR
plus 0.1%, cash and cash equivalents 0.1%, equities 3.5% and
property 2.0%.
The asset allocation
at 31 March 2011 was 51% bonds, 14% LIBOR plus, 24% cash, 9%
equities and 2% property (based on allocations to asset
managers).
Other developments
On 26
January 2011, we announced that a wholly owned subsidiary of Amlin
plc had acquired J R Clare Underwriting Agencies Limited
(‘JCUA’) from Mr John Clare. JCUA is a managing general
agent, which sources approximately £30 million of UK
household and commercial insurance premium income. JCUA has been
successfully sourcing business for London Market underwriters since
1999. However, it had recently lacked sufficient capital to
continue to fund its operations and to satisfy FSA solvency
requirements. At 31 December, JCUA had gross assets of £3.2
million, including £1.5 million of cash held on behalf of
insurers.
On 28 January 2011 we announced that a wholly owned subsidiary of
Amlin plc had entered into an agreement to acquire Lead Yacht
Underwriters Limited (‘Lead Yacht’) from members of
Lead Yacht’s board of directors. The transaction received FSA
approval of the change of control on 1 February 2011. Established
in 1997 and based in London, Lead Yacht is an underwriting agency
and world-wide leader in the provision of super-yacht insurance.
The company underwrites through an exclusive network of insurance
brokers and in the current financial year expects to handle
approximately US$34 million of gross written premium, of which
Amlin initially intends to underwrite approximately one third. At
31 May 2010, the date of the company’s latest audited
accounts, Lead Yacht had gross assets of approximately £6.4
million.
On 30 March 2011, Amlin plc repurchased, at par, €30 million
of subordinated debt issued by ACI and held by its former parent
company.
In line with the continued development of the
Group, in February we appointed Andreas Luberichs, formerly of
Chubb Europe, to the new position of Group Head of Underwriting.
The Group Underwriting function is charged with ensuring that all
divisions across the Group operate in accordance with Amlin’s
underwriting culture, standards and philosophy. This is
particularly relevant for new ventures and acquisitions.
Separately, on 22 March 2011, we announced that Patrick Coene is to
stand down as Chief Executive of ACI. As announced separately
today, subject to the approval of the Dutch National Bank, he will
be succeeded by Kim Hvirgel on 1 June 2011.
(1)
Excludes Amlin France and Amlin Re Europe
(2) Guy Carpenter: “GC Briefing – April 1
Reinsurance Renewals” (March 2011)
(3) JP Morgan (23 February 2011)
(4) Eqecat press release (10 May 2011)
