Interim Management Statement

RNS Number : 8245L

Amlin PLC

13 May 2010

 



Amlin plc

PRESS RELEASE

For immediate release

13 May 2010

Interim Management Statement for the period to 12 May 2010

The trading environment has proved more challenging in the first four months of 2010 than during 2009.  Overall pricing remains steady but there remains considerable variance by class. Loss activity has also risen with a number of notable catastrophe events, particularly the Chilean Earthquake in February and significant large losses, including the Deepwater Horizon rig explosion in April. Financial markets have also been volatile. It is in this type of environment that Amlin's focus upon gross underwriting performance, the quality and diversity of its portfolio and its well proven management across the business should prove advantageous.

Underwriting environment

The Group's gross written premium (before deduction of brokerage) was up 32.1% for the four months ended 30 April 2010 at £964.0 million (30 April 2009: £729.7 million). ACI represented £246.3 million of this increase following its acquisition in July 2009. At constant exchange rates written premium increased by 37.6% (30 April 2009: £700.8 million). The underlying increase for the pre-existing Amlin business was £16.9 million.

The average renewal rate decrease for the Group during the first four months of 2010 was a modest 1.4%1, with renewal retention high at 88.4%. This is analysed by division in the table below:

	Gross written premium to 30 April 2010 £ million	Renewal rate change to 30 April 2010 %	Renewal retention ratio to 30 April 2010 %	Gross written premium to 30 April 2009 £ million	Renewal rate change to 30 April 2009 %	Renewal retention ratio to 30 April 2009 %
Amlin London	488.4	(1.4)	87.9	519.8	4.4	87.9
Amlin UK	64.3	1.2	83.7	57.4	1.0	85.9
Amlin France	19.8	n/a	n/a	18.2	n/a	n/a
Amlin Bermuda (Direct)	145.2	(2.5)	92.2	134.3	3.9	95.6
Amlin Corporate Insurance	246.3	n/a	n/a	n/a	n/a	n/a
Total / average	964.0	(1.4)	88.4	729.7	4.0	89.2

Catastrophe reinsurance business, which represents approximately 24% of 2010 gross written premium, has, as anticipated, experienced downward rating pressure. The US catastrophe account experienced an average rate decrease of 1.4%, but when taking account of some major increases on loss affected business the underlying rate decrease is approximately 5%. Rates within the international catastrophe book have been broadly flat, helped by rate increases in territories that were loss affected in 2009.  Similarly we believe that the Chilean Earthquake is likely to lead to rate rises on South American programmes but it does not appear to have removed the downward pressure in the United States. Overall good margin potential remains in this area. As planned, Amlin Bermuda has been able to increase its direct reinsurance account during 2010 by 13.1% to $217.6 million.

Property and Casualty rates have remained relatively stable, with an average decrease of 0.9%. As previously reported, competition in this area has been stronger than anticipated in the wake of the financial crisis of 2008 and the required improvements in premium rates to return the market to a position that we would find supportive of growth have so far failed to materialise. We still expect improvement, however, exactly when these will come remains uncertain and we are cautious in our outlook for 2010.

Average rates within our London Marine business were flat. The energy account experienced downward pressure following the low level of hurricane activity in 2009, with an average decrease of 4.3% in the period. However, we expect that the Deepwater Horizon oil rig disaster will arrest this decline and trigger upward pressure on rates. Modest increases were achieved in most other Marine classes. 

The trading environment for Amlin UK continues to improve. Increases to fleet motor rates averaged 1.9% in the period. Overall, fleet motor income is up 17.0%, with new business amounting to £9.0 million net of brokerage. Elsewhere, rates for liability classes have also begun to show modest increases.  

Our recent investment in underwriting personnel, marketing and operational infrastructure has positioned the UK business to take advantage of an anticipated improvement in the trading environment through 2010.

In Continental Europe, both for ACI and Amlin France, market conditions remain competitive and little evidence exists that rating improvements are imminent. The continued re-underwriting of the Marine portfolio is progressing, with premium income down in the first four months by 16%. Improvement is evident for the Rotterdam portfolio which was the focus of corrective action in 2009. We expect that improving trend to continue in 2010 as further action is taken on poorly performing parts of the portfolio. Greater focus is now intended for the smaller Antwerp portfolio which continues to disappoint.

1 Excludes Amlin France and ACI.

Outwards reinsurance

Apart from the retrocessional reinsurance programme the core reinsurance programmes were renewed with structures largely unchanged from 2009. The retrocessional programme in London was restructured in the period following a review of the value offered by the previous programme. Greater retention of the first major catastrophe event is now borne by the Group but cover has now been purchased which responds in the event of a series of medium sized catastrophes.  

Claims and reserves

Estimates of overall catastrophe losses in the period to 31 March 2010 reached $16 billion2, the worst first quarter on record.

The most notable catastrophe was the Chilean earthquake which occurred on 27 February 2010. Our current estimated claims for the earthquake are not materially different to those disclosed on 22 March 2010. Amlin's exposures sit mainly within the international property catastrophe reinsurance account. Based on an insured market loss of between $3.9 billion and $7.7 billion, we estimate our net catastrophe excess of loss account losses to be between $142 million and $165 million. If the Chilean earthquake insured loss increases to around $10 billion, the catastrophe reinsurance claims would increase by $11 million and all of Amlin's inwards catastrophe excess of loss reinsurance exposures will have been exhausted. Exposure within other direct and reinsurance accounts is difficult to estimate at this stage, but should largely be absorbed in our expected loss ratios. The scale of damage arising from this event continues to be uncertain but, given the size of the earthquake, our current loss estimates are intended to be conservative.

Other catastrophe losses include Windstorm Xynthia in February, Australian hailstorms in March and the Baja earthquake in April. Amlin does not expect material claims from any of these events.

The other significant market event in the period is the loss of the Deepwater Horizon oil rig in April. We estimate that Amlin's net loss from this event is $15 million.

At 31 March 2010, following the normal quarterly review of claims reserves, £25.4 million was released from reserves (31 March 2009: £20.0 million).

2 Wills Re news release, 31 March 2010.

Investment returns

The Group's investment return for the four month period to 30 April is estimated to be 2.0%, with average funds under management of £4.1 billion. In this period bonds returned 2.0%, Libor+ 1.4%, cash and cash

equivalents 0.1%, equities 5.5% and property -0.7%. Clearly recent market volatility will have reduced returns from the April position.

The asset allocation at 30 April 2010 was 62% bonds, 24% LIBOR plus, 3% cash, 8% equities and 3% property (based on allocations to asset managers).

The continued improvement in economic and company earnings data supported equity and non-government bond returns to the end of April. However since then, increased concerns about government debt levels, especially those of certain Euro area countries, has negatively impacted investor confidence and trimmed our returns. At the end of April we had low exposure, £48.4 million or 1.2% of total funds under management, to the sovereign debt of Greece, Ireland, Portugal and Spain.

Integration of Amlin Corporate Insurance N.V. ('ACI')

The integration of the ACI business into Amlin has continued during 2010. As noted above, work to address known issues within the Marine portfolio has been an area of focus for the ACI management team. Progress has been made in implementing key aspects of Amlin's financial and risk management practices and ACI has been brought into the Group's Solvency II programme. The systems replacement programme to move ACI onto Amlin's IT platform is the main area of development for the rest of 2010.

In addition, the ACI and AFU business units in France were merged in early May 2010 and will now trade as Amlin France.

Amlin Re Europe

On 5 May we announced our intention to establish a reinsurance platform in Switzerland to provide the Group with access to European reinsurance business that does not typically flow into the London and Bermuda marketplaces. As part of these plans Amlin intends to re-domicile its reinsurance company, Amlin Bermuda Limited ('Amlin Bermuda'), from Bermuda to Zurich. It is proposed that the newly re-domiciled Swiss company will be named Amlin AG and that the existing operations of Amlin Bermuda will become a Bermuda-based branch of Amlin AG.

We believe that there is an opportunity to build another meaningful reinsurance platform over the next few years. After a decade of consolidation in the European reinsurance market, recent turbulence in global financial markets and the Solvency II developments we believe that reinsurance buyers are increasingly looking to diversify their insurance risk and spread their counterparty risk. Amlin AG's capitalisation will be approximately US$1.4 billion, placing the company amongst the leading players in terms of financial strength.

Amlin AG's Zurich-based underwriting platform (trading as 'Amlin Re Europe') will be staffed by a core team formerly at Swiss Re, headed by Philippe Regazzoni who will become Chief Executive of Amlin AG. The platform in Zurich will diversify Amlin Bermuda's existing reinsurance portfolio geographically and by class of business helping to reduce the overall volatility of the book and making more efficient use of the Group's capital and financial strength. The Zurich-based business will focus mainly on property and casualty treaty reinsurance for small and mid-sized insurance companies.

Amlin remains committed to Bermuda as a key operating platform and the Bermuda branch will continue to trade as Amlin Bermuda. Amlin Bermuda will continue to serve its existing reinsurance clients and brokers in exactly the same manner as it does today and Amlin Bermuda policyholders will be unaffected by the redomiciliation.

The redomiciliation remains subject to regulatory approvals. Amlin AG's Zurich-based underwriting platform plans to commence underwriting operations shortly after such approvals have been obtained. Existing financial strength ratings have been affirmed by rating agencies.

Other developments

On 22 January 2010, we completed the purchase of Lockton's UK insolvency practitioners' insurance business. The business, which generated approximately £13 million of gross written premium in 2009, will operate as an FSA registered broker and trade as AUA Insolvency Risk Services Limited.

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
Rob Bailhache, Financial Dynamics	0207 269 7200
Nick Henderson, Financial Dynamics	0207 269 7114
Media
Hannah Bale, Head of Communications, Amlin plc	0207 746 1118
David Haggie, Haggie Financial LLP	0207 417 8989 / 07768 332486
Peter Rigby, Haggie Financial LLP	0207 417 8989 / 07803 851426

 

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