Interim Management Statement

RNS Number : 5286C

Amlin PLC

16 November 2009

 



Amlin plc

PRESS RELEASE

For immediate release

16 November 2009

Interim Management Statement for the period from 1 July 2009

Performance in the first ten months of the year has been excellent.  Profitability has been enhanced by a 52.0% increase in premium to £1,374.6 million, low claims incidence, further run off profits from reserves and a strong investment performance. 

The acquisition of Fortis Corporate Insurance N.V. ('FCI') was completed on 22 July 2009, with FCI renamed Amlin Corporate Insurance ('ACI') on that date. Financial performance since acquisition has been better than expected, largely as a result of excellent investment returns.  

We continue to believe that the acquisition of ACI will enhance earnings and return on equity in 2009 and positively contribute to Amlin's cross cycle return on equity target of at least 15%. 

Underwriting environment

A significant proportion of Amlin's business is written in areas, such as US catastrophe reinsurance, where good rate increases have been achieved and there continues to be strong margin potential, or where better rating conditions are anticipated, such as in UK motor. 

The average renewal rate of increase for the Group during the first ten months of 2009 was 4.4%, with renewal retention stable at 85.8%. This is analysed by division in the table below:

	2009 gross written premium to  31 October  £ million	Renewal rate change to 31 October %	Renewal  retention ratio to  31 October  %	Renewal rate change to 30 June %	Renewal  retention ratio to 30 June  %
Amlin London	822.4	4.4	84.4	5.6	86.7
Reinsurance	365.1	5.0	91.5	7.3	92.0
Property and Casualty	218.7	3.4	82.5	3.5	82.4
Marine	197.0	5.6	77.1	5.9	81.7
Aviation	41.6	0.2	78.9	(0.6)	84.6
Amlin UK	140.8	2.1	83.1	0.7	83.6
Amlin Bermuda (Direct)	223.7	5.7	92.4	4.7	93.1
Anglo French Underwriters	25.3	n/a	n/a	n/a	n/a
Amlin Corporate Insurance 1	162.4	n/a	n/a	n/a	n/a
Total / average	1,374.6	4.4	85.8	4.9	86.1

1 Represents gross written premium in the period since acquisition.

Our catastrophe reinsurance account, which represents approximately 28.1% of 2009 gross written premium, has experienced solid rate increases in the year and continues to offer good margin potential for our London  and  Bermuda  businesses. 

The Property and Casualty business achieved an overall rate improvement of 3.4% on the renewal portfolio. As previously reported, competition in this area has been stronger than expected and the necessary improvements in premium rates to return the market to a position that we would find supportive of growth have not materialised to date. However, performance by sector is variable. For example, in US property insurance we achieved an average rate increase of 6.6%, whilst  the US casualty business has experienced an average rate decrease of 1.7%. We continue to believe that pricing in the US commercial insurance market is unsustainably low, but while the prospect of lower investment returns should encourage an upward trend, we are cautious in our expectations for 2010. 

Within our London Marine business, the energy account experienced a further significant uplift in rates, with an average increase of 25.2% in the period. However, in response to higher rates and stricter terms, coupled with challenging economic conditions, clients have retained more risk which has restricted growth in premium volumes. Hull and liability  classes have sustained favourable rate improvements of 7.5% and 6.6% respectively, with modest increases in most other Marine classes. 

As reported previously, our appetite for airline business has been limited while rates have remained competitive. With a number of notable losses in the year to date pushing the airline insurance market into loss, recent rate increases have been between 15% and 25%. A large proportion of our airline business is still to renew and we are optimistic of  further  improvement in the rating environment into 2010. Pricing for other non-airline classes has also begun to stabilise.

The trading environment for Amlin UK has continued to improve since 1 July. Increases to fleet motor rates now average  5.3% with an improving trend beginning to emerge. Average increases of 3.6%, 7.1% and 10.5% were achieved in  August, September and October respectively. The level of quotes provided year on year, and more importantly the overall conversion ratio, has continued to improve through the third quarter. Overall, fleet motor income is up 30.8%, with new business amounting to £30.7 million net of brokerage.  Rates for liability classes have also begun to stabilise. Other classes, as expected, are slowly but surely showing more positive signs.   

Looking forward we expect further increases in UK commercial motor rates in 2010. Typically other UK commercial  classes are slower to improve at this stage in the cycle, but we anticipate greater upward momentum over the next few months. Recent investments in our underwriting personnel, marketing and operational infrastructure have positioned the UK business to expand substantially as market conditions offer more attractive returns.  

Market conditions for ACI remain competitive and the business is trading at around a break even underwriting level. The  Property and Liability accounts have acceptable margins given the stage of the underwriting cycle in the Benelux region but there is currently little evidence of rate improvement. As anticipated, re-underwriting of the Marine portfolio has continued and problem areas are being addressed. 

Premium written

The Group's gross written premium (before deduction of brokerage) for the ten months to 31 October 2009 was up 52.0% at £1,374.6 million (31 October 2008: £904.1 million). The increase was supported by the appreciation of the US Dollar relative to sterling. At constant exchange rates written premium increased by 31.4% (31 October 2008: £1,045.7 million). 

The underlying increase in written premium reflects the overall improvement in the general rating environment and the addition of new business.  

Syndicate 2001 has written £988.6 million of premium, an increase of 31.6% (31 October 2008: £751.4 million). Reinsurance business accounted for almost half of this increase. Anglo French Underwriters, which was acquired in November 2008, has contributed premium of €28.6 million.

Amlin Bermuda contributed US$342.7 million of direct income in the ten months, an increase of 16.9% over the comparative period (31 October 2008: US$293.2 million).

ACI has added €169.8 million of written premium in the period since acquisition. 

Outwards reinsurance

There have been no major changes to our reinsurance programme structures since our Interim Report.  Special Purpose Syndicate 6106 ('S6106'), which was established in November 2008 to write a 15% quota share of Syndicate 2001's excess of loss accounts, has given us scope to grow our reinsurance income despite the scarcity of traditional retrocessional capacity.  At 30 September 2009, premium ceded to S6106 was £42.6 million, against total capacity of £50.0 million. Excluding S6106, reinsurance expenditure as a proportion of gross written premium is expected to be relatively constant.  

Exposure to our largest modelled natural catastrophes is materially unchanged from 30 June 2009. 

  Claims and reserves

There has been no major insured catastrophe event in the period and, although there have been a significant number of smaller catastrophe losses, these have not had a material financial effect on Amlin. The largest catastrophe loss incurred by the Group was European storm Klaus in January, for which our net loss is conservatively estimated at $19 million No major risk losses were incurred during the quarter to 31 October 2009. 

Our reserving review for the nine months to September 2009 has been completed and no material further change has been made to our reserving approach to those reported in the Interim Report. At 30 September 2009, £39.2 million of run off profits were realised from reserves, bringing cumulative releases for the nine months to 30 September 2009  to  £111.2 million (excluding ACI) (30 September 2008: £89.1 million). Releases reflect several different factors:

-  we have finalised a number of large single claims settlements and claims subrogations which have realised 
   savings compared with the reserves; 

-  we have reviewed the reserving approach to UK commercial claims, where it has become evident that our claims
   case reserves in aggregate have been more robust than previously estimated and a trend of steady improvement
   has been established. Accordingly, we have adjusted our approach to fleet and liability classes, which has led to 
   a release of £16 million (£10 million at 30 June 2009);

-  generally, claims development has been benign.

ACI claims reserves remain under review, in line with the ongoing assessment of acquisition fair value for accounting purposes. As noted in the Interim Report, a margin over the actuarial best estimate exists, and we expect to finalise the fair value exercise at the time of our final results. 

Investment returns

Signs that the global economy was emerging from recession helped equities and non government bonds to continue to rally from the mid-year point. Despite the better economic data, government bonds also did well during the third quarter as fears that central banks would be quick to raise interest rates subsided. The Group's investment return for the 10 month period to 31 October 2009 is estimated to be 5.3%, with average funds under management of £3.3 billion. In this period bonds returned 7.0%, cash and cash equivalents 0.6%, equities 16.9% and property (18.3)%. The decision to increase our non government bond weighting at the start of the year enhanced our return for the quarter. The Group return also includes an estimated return of 4.7% generated by ACI in the period since acquisition, on average funds under management of £1.2 billion.                

Strong investment returns in the ten month period leave less scope for similar returns to be repeated in the near term.    

The investment allocation at 31 October 2009 was 80% bonds, 15% cash and cash equivalents, 3% property and 2% equities (based on allocations to asset managers).

Taxation

The effective rate of tax for the period remains well below the rate of UK corporation tax primarily due to Amlin Bermuda, which operates locally with no corporation tax.  We continue to believe that Amlin Bermuda meets the requirements to be exempt from controlled foreign company status in the UK and no current tax is provided on its profits.

Following the enactment of legislation by the UK government to exempt all foreign dividends from subsidiaries from UK tax, the deferred tax provision of £16.1 million held at 30 June 2009 in respect of UK tax payable on potential future Amlin Bermuda dividends has been released.

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

Ensuring ACI is successfully integrated within the Group is an area of particular focus and we are pleased with the progress made to date. The integration framework and governance structure has been established and outline integration plans produced.  Work on selecting the future underwriting system for all but the motor business has been completed and we have chosen to align the UK and ACI platforms under our existing UK systems suppliers.  After review this appears to be the most efficient and lowest risk approach and will lead to more speedy alignment of processes. Elsewhere, within the business, senior underwriters from Amlin London and ACI have been working together to address known issues within the existing Marine portfolio, specifically with regard to the international ocean hull and cargo accounts. Work is ongoing in this area.

The initial assessment of goodwill arising on acquisition was set out in our Interim Report. 

Other developments

In October 2009, Leadenhall Capital Partners LLP, the Amlin backed insurance linked securities (ILS) fund manager, launched two new $50 million funds to be listed on the Irish Stock Exchange. The funds are aimed at a global audience but the Irish domicile and regulation is attractive to European investors who are seeking the security of 'EU onshore' ILS funds.

The performance of Leadenhall's existing portfolio in the four month period to 31 October was strong with a return of $4.4 million (6.2%) on $70.5 million of average funds under management. The return for the ten months to 31 October was $6.8 million (11.5%) on $59.3 million of average funds.

Following completion of the acquisition of ACI, the audit of companies in the Amlin group was spread between three audit firms. With Deloitte LLP having been group auditors since 2000, the Board (on the recommendation of the Audit Committee) decided that it was therefore an appropriate time to put the Group audit out to competitive tender. As previously announced on 24 September 2009, PricewaterhouseCoopers LLP ('PwC') was successful in this process and the Board has appointed PwC as auditors for the Amlin group.

Summary

Underwriting and investment performance have both been excellent in the year to date. The ACI performance has been better than expected since acquisition, largely due to strong investment performance, and integration is progressing well. Amlin continues to maintain an excellent capital position which provides us with flexibility to continue to develop our business.

Charles Philipps, Amlin's Chief Executive commented, "We have had an outstanding quarter's performance and expect the full year result to be an excellent one. Moreover, the Group is well positioned for 2010, in particular with improving conditions for our UK business becoming more visible."

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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