Interim Management Statement

RNS Number : 4350G

Amlin PLC

12 May 2011

 



Amlin plc

12 May 2011

Interim Management Statement for the period to 11 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.

¹Excludes Amlin France and Amlin Re Europe

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 billion⁴ 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).

²Guy Carpenter: "GC Briefing -  April 1 Reinsurance Renewals" (March 2011)

³JP Morgan (23 February 2011)

⁴Eqecat press release (10 May 2011)

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.

Enquiries:
Charles Philipps, Chief Executive, Amlin plc	0207 746 1000
Richard Hextall, Finance Director, Amlin plc	0207 746 1000
Analysts and Investors
Julianne Jessup, Head of Investor Relations, Amlin plc	0207 746 1961
Ed Gascoigne-Pees, Financial Dynamics	0207 269 7132
Ed Berry, Financial Dynamics	0207 269 7297
Media
Hannah Bale, Head of Communications, Amlin plc	0207 746 1118
Ed Gascoigne-Pees, Financial Dynamics	0207 269 7132
Ed Berry, Financial Dynamics	0207 269 7297

 

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