Interim Management Statement

RNS Number : 1414S

Amlin PLC

13 May 2009

 



Amlin plc

PRESS RELEASE

For immediate release

13 May 2009

Interim Management Statement 

Trading environment

As predicted there has been a steady improvement in the trading environment since the year end across a number of our key classes. It is expected that rating levels will continue to improve for many of our lines of business through 2009, although the speed and extent of change will continue to vary. 

The average renewal rate of increase for the Group during the first four months was 4.0%, with renewal retention at a healthy 89.2%. This is analysed by division in the table below:

	2009 gross written premium to 30 April £ million	Renewal  rate change %	Renewal  retention ratio  %
Amlin London	519.8	4.4	87.9
Reinsurance	237.3	6.3	93.7
Property and Casualty	119.1	2.3	80.3
Marine	136.1	4.2	85.2
Aviation	27.2	(0.9)	85.2
Amlin UK	57.4	1.0	85.9
Amlin Bermuda	134.3	3.9	95.6
Anglo French Underwriters	18.2	n/a	n/a
Total / Average	729.7	4.0	89.2

Catastrophe reinsurance business, written within Amlin London and Amlin Bermuda, has experienced good rate increases and this area of our business continues to offer excellent margin potential. 

Within the reinsurance portfolio, the US catastrophe account has had average rate increases of between 7% and 10%, with the largest increases in zones affected by 2008 hurricane activity. The rate of increase in the international catastrophe book is slower, but improvements to rates have been achieved. Notably, the recent Japanese catastrophe reinsurance renewals had an average 8% increase.

Elsewhere, Property and Casualty business, having recently traded towards the bottom of the cycle, is beginning to show early signs of improvement. Increased upward pressure is anticipated as the year progresses. 

In our Marine business, the energy account has seen a sharp uplift in rates in response to the 2008 hurricanes, with an average increase of 19% in the period.  Hull and liability rates also improved by 9% and 7% respectively, with modest increases in most other Marine classes. 

Our appetite for airline business has been limited while airline rates have remained competitive. Following a number of notable losses in the year to date and with most airline business renewing in the latter part of the year, we remain optimistic of improvements in the rating environment in 2009.

The trading environment for Amlin UK is also improving. Increases to fleet motor rates, often the first sign of upward pressure in the wider UK commercial market, averaged 3.5% in the period. While rate increases so far are still relatively small, it is notable that there has been a significant increase in the level of quotes provided year on year and, more importantly, in the overall conversion ratio. Having recently made a number of strategic investments, including the strengthening of our UK property team in April, we are well positioned to take advantage of the expected upturn in the UK market through 2009 and beyond. 

  Premium written

The Group's gross written premium (before deduction of brokerage) in the first four months ended 30 April 2009 was up 39.2% at £729.7 million (30 April 2008: £524.2 million). The increase was supported by the appreciation of the US Dollar relative to sterling. At constant exchange rates written premium increased by 14.5% (30 April 2008; £637.2 million). 

Excluding the positive impact of foreign exchange, the underlying variance in written premium reflects the overall improvement in the general rating environment and the addition of new business, including the acquisition of Anglo French Underwriters in November 2008 which generated £18.2 million of premium in the four months to 30 April 2009.

Syndicate 2001 contributed £595.4 million of premium, an increase of 35.4% (30 April 2008: £439.7 million), with our Reinsurance business accounting for 48.6% of this increase. 

Amlin Bermuda has written US$194.7 million of direct income in the first four months representing an increase of 16.4% on the prior year period (30 April 2008: US$167.2 million).

Syndicate 2001 increased its cessions to Amlin Bermuda in the first four months with £29.4 million (2008: £21.4 million) of specific cessions and the 2009 whole account quota share to Amlin Bermuda rising to 17.5% (2008: 12.5%).  

Outwards reinsurance

As expected, retrocessional reinsurance has become scarcer and more expensive, as the risk appetite of reinsurers has become constrained and capital markets activity in this area has fallen. Amlin has continued to purchase retrocessional reinsurance, though the overall level of cover has reduced.  However, Special Purpose Syndicate 6106, which was established in November 2008 to write a 15% quota share of Syndicate 2001's excess of loss accounts, provides an alternative risk transfer mechanism. For the three months to 31 March 2009, premium ceded to Special Purpose Syndicate 6106 was £39.6 million, against total capacity of £67.3 million at 31 March rates of exchange.

Excluding the Special Purpose Syndicate 6106, reinsurance expenditure as a proportion of gross written premium is expected to be relatively constant.

Exposure to our largest modelled natural catastrophes has been reduced even though written reinsurance premiums net of retrocessional reinsurance and cessions to Special Purpose Syndicate 6106 have increased. 

Claims and reserves

Whilst there has been no major insured catastrophe event in the period, there have been a number of smaller catastrophe losses and several large risk losses. These include the European winter storm Klaus in January, the Australian wildfires in February, the Italian earthquake in April and some notable airline losses. Amlin's exposure to each of these events is modest, with our largest net catastrophe loss for the period being conservatively estimated at $8.5 million for winter storm Klaus. Our estimated claims for Hurricanes Ike and Gustav have not materially changed during the period. 

At 31 March 2009, following the normal quarterly review of outstanding liabilities, £20.0 million was released from reserves (31 March 2008: £31.2 million).

Investment returns

The investment return for the four month period to the end of April is estimated to be 0.4%, with average funds under management of £2.9 billion. This reflects a strong performance in April following a weak first quarter. The table below shows estimated returns by asset class for the four months to 30 April 2009.

Asset class	Average assets under management £ million	Investment  return %
Bonds	1,975	1.5
Cash and cash equivalents	617	0.4
Equities	207	(4.0)
Property	88	(13.9)
Total	2,887	0.4

Despite being defensively positioned, the Group's investment return for the first quarter was a loss of 0.8%. Poor economic data meant that risk assets continued to perform badly and the low returns available from safe haven investments, such as government bonds and cash, provided little protection to investment performance. Exposure to non-government bonds was increased during the quarter as spreads over government bonds reached depression levels making selected bonds attractive from a risk/reward perspective.

By contrast, investment performance in April was positive, with an estimated return of 1.2% achieved as equity markets rallied. Despite the strong upward movement in equities, short dated bond yields were capped by low inflation data, quantitative easing and the stated intent to keep interest rates low for an extended period of time. Non-government bonds participated in the improved appetite for risk, leading to some claw-back of previous bond manager underperformance.  

The investment allocation at 30 April 2008 was 67% bonds, 23% cash and cash equivalents, 7% equities and 3% property (based on allocations to asset managers). Allocations within the bond portfolio remain reasonably consistent with the position at the year end and the credit quality remains strong.

Taxation

The UK Budget in April contained two notable developments that are expected to have a positive impact on the Group.

Firstly, following a review of the taxation of foreign profits, the UK Government announced that all foreign dividends will be exempt from UK tax with effect from 1 July 2009. Once the legislation is substantially enacted, this will enable the deferred tax provision of £16.1 million held at 31 December 2008 in respect of UK tax payable on potential future Amlin Bermuda dividends to be released. Over time, this exemption will lead to a reduction in the ongoing effective tax rate.

Secondly, the Government confirmed its earlier commitment to introduce a tax relief in the form of a claims equalisation reserve for Lloyd's businesses. The new regime will apply retrospectively to profits which are treated as arising in 2008 (i.e. profits from the 2005 year of account). The mechanics of the regime are still to be formally announced and so it is difficult at this stage to provide an estimate of the expected benefit. However, we expect it to be materially beneficial to the Group.

Summary

With its strong capital position the Group remains well placed to take advantage of the improving insurance and reinsurance markets. Approximately 47% of the Group's budgeted 2009 income is in reinsurance where rate increases to date have been among the strongest and where further increases are expected during the June and July renewals for peak US catastrophe zones. Positive trends are also evident in many specialty lines and the UK commercial market. Given the continued upward trend in insurance and reinsurance pricing and some signs of an easing of the world economic crisis of the past year, the outlook for the Group is becoming increasingly positive.

Charles Philipps, Amlin's Chief Executive commented, 'We have seen a flight to quality and recognition of our capital strength and superior ratings, which are reflected in our increased renewal ratios and the expansion of our London, UK and Bermudian businesses.'

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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