Interim Management Statement

RNS Number : 9845S

Amlin PLC

14 November 2013

 



Amlin plc

Interim Management Statement for the nine month period to 30 September 2013

14 November 2013

Amlin delivered excellent overall underwriting returns in the quarter, with continued improvement in performance in Amlin Europe and limited catastrophe activity. Investment returns for the nine months to 30 September 2013 were 2.0%. Full year results are expected to exceed our cross cycle target return on equity of 15%.

Looking to 2014, we expect reinsurance pricing to come under further pressure from the growth in alternative capital market competition and limited loss activity adding to already healthy capital levels in the industry. However, with disciplined underwriting across our well diversified reinsurance account, we expect to maintain acceptable margins. In most other areas we expect a reasonably flat pricing environment, although in UK commercial and US property and casualty we anticipate further rating improvement.

Increasing profitability in Amlin Europe, Amlin Re Europe and Amlin UK, as well as a growing contribution to earnings from our investment in Leadenhall Capital Partners, is expected to help offset lower catastrophe reinsurance margins in 2014.

Underwriting

Gross written premium for the nine months ended 30 September 2013 was £2,195.7 million (30 September 2012: £2,199.1 million). Average renewal rates were flat (30 September 2012: increase 3.8%) and the renewal retention ratio was healthy at 86.5% (30 September 2012: 85.3%).  However for the 2013 underwriting year, gross written premium was up 4.8% at £2,276.6 million for the nine month period to 30 September 2013 (2012 underwriting year to 30 September 2012: £2,171.4 million).

As previously reported, reductions to premium estimates on binding authorities have been made to 2012 premium. Notably, Amlin UK has reduced estimates for its property and package accounts by £33.2 million. This portfolio has expanded rapidly in recent years, with significant new business, making the income estimation process inherently more difficult.

Underlying growth in gross written premium, and changes in business mix, across 2012 and 2013 continue to provide healthy momentum to earned income.

Performance by division is analysed in the table below.

	Gross written premium to 30 Sept 2013 £ million	Renewal rate change  to  30 Sept  2013 %	Renewal retention ratio to 30 Sept 2013 %	Gross written premium to 30 Sept  2012 £ million	Renewal rate change to 30 Sept 2012 %	Renewal retention ratio to 30 Sept 2012 %
Amlin London	985.3	(0.8)	86.4	953.9	4.9	84.5
Amlin UK	269.6	4.2	86.2	312.6	4.6	81.8
Amlin Bermuda	331.3	(3.1)	83.3	332.2	6.3	87.6
Amlin Re Europe	196.3	2.4	90.3	161.9	2.3	90.4
Amlin Europe	413.2	0.1	88.0	438.5	0.3	85.1
Total / average	2,195.7	(0.1)	86.5	2,199.1	3.8	85.3

Note: Gross written premium by division is shown excluding the impact of intra-group transactions.

US catastrophe reinsurance rates decreased by an average of 4.5% for the nine months to 30 September 2013. The June Florida renewals experienced the greatest declines and since then rate reductions have moderated.

International catastrophe business, which represents more than 40% of Amlin's catastrophe underwriting, is experiencing less pronounced competition, with rate decreases of only 1.1% in the period.

Rates for both US and international catastrophe business remain at near peak levels, and we believe that even with recent and anticipated rate reductions, catastrophe reinsurance business remains attractive.

Against this backdrop, a number of our key insurance classes are experiencing better trading conditions.

Steady improvement in our UK commercial business, particularly for UK fleet motor, has continued with increasingly positive signs for other classes. Fleet motor rates increased by an average of 9.0% in the first nine months of 2013. Liability rates are also moving in the right direction, with all classes now achieving increased rates. Our expectation is that this trend will continue.

Rate increases for Amlin London's property and casualty classes continue to improve slowly and some £73.0 million of new business has been added. Renewal rates for Amlin's London marine and aviation classes, taken as a whole, remain flat.

Amlin Re Europe continued to develop positively, adding £36.3 million of new business in the period. The retention ratio was also high, at 90.3%, and renewals benefited from an average rate increase of 2.4%.

In a flat rating environment, Amlin Europe's retention ratio has improved to 88.0% (30 September 2012: 85.1%). Having completed its marine re-underwriting, this business is now able to focus on profitable growth.

Outwards reinsurance

Reinsurance expenditure in the nine months to 30 September 2013 was £343.5 million, representing 15.6% of gross written premium (30 September 2012: £342.5 million and 15.6%) and includes the cost of the Tramline II catastrophe bond issued in June 2013. While costs have remained stable, we have materially reduced catastrophe reinsurance account event retentions, providing a better risk-reward equation for 2013 than has been possible in recent years and, through the Tramline II bond, have additional coverage for North American earthquake risk.

Claims and reserves

There were no major catastrophe losses in the third quarter and the largest event in the year to date remains the European flood losses in May and June which are estimated at £25.7 million. Smaller catastrophe losses, including European hailstorm and Mexican flood losses, were £13.9 million in the third quarter, and amount to £37.0 million for the nine month period.

Large risk losses were higher in the third quarter, amounting to £28.6 million, bringing the nine month total to £41.6 million.

Claims reserves for prior years have continued to run-off positively with releases in the first nine months now totalling £79.3 million (30 September 2012: £69.4 million). Releases in the third quarter were predominantly due to positive claims development in Amlin Bermuda and Amlin Europe.

Investment returns and foreign exchange

Investment return for the nine month period was 2.0%, with average funds under management of £4.3 billion. The asset allocation (based on allocations to sub-advisors) at 30 September 2013 was 48% bonds, 28% absolute return funds, 11% cash and cash equivalents, 8% equities and 5% property.

The weakening of the US dollar during the third quarter generated £68.2 million of foreign exchange losses on translation of foreign operations (net of designated hedges) through reserves, partially reversing previous translation gains.  

Other developments

With corrective action taken to address previous performance issues, supported by a clear focus on significantly increasing profitability, Amlin Europe's performance is continuing to improve. The business is now implementing a growth strategy, which includes increasing its relationships with mid-tier brokers in the Benelux countries who source SME business. The integration of Amlin France into Amlin Europe is also progressing well and the previously announced acquisition of Raets has broadened our marine capabilities.

Amlin is a leading reinsurance franchise, and is well positioned to meet increased competition from capital markets. However, we recognise the importance of constantly developing our reinsurance offering. Leadenhall Capital, which has achieved a strong track record since its formation in 2008, is continuing to attract new funds and now has $1.5 billion of third party funds under management. Leadenhall is increasingly relevant to Amlin's reinsurance strategy, with synergies being realised between Amlin's traditional reinsurance underwriting and Leadenhall's involvement in the market. We believe that Leadenhall strengthens Amlin's overall offering to clients while Amlin provides Leadenhall with a competitive advantage in sourcing attractive business. These synergies should further strengthen Amlin's market position as the reinsurance market continues to evolve.

Charles Philipps, Amlin's Chief Executive, commented: "Amlin has had a good third quarter and we expect to deliver an above target return on equity in 2013. Our core businesses are performing well in demanding market conditions, Amlin is well positioned to take advantage of the opportunities created by changes in the reinsurance market and the improving returns on our investments in Amlin Europe, Amlin Re Europe and Leadenhall Capital will increase the benefit of the diversity they bring to the Group."

Enquiries:
Enquiries:
Charles Philipps, Chief Executive, Amlin plc	0207 746 1000
Richard Hextall, Group Finance & Operations Director, Amlin plc	0207 746 1000
Analysts and Investors
Julianne Jessup, Head of Investor Relations, Amlin plc	0207 746 1961
Media
Ed Berry, FTI Consulting	0207 269 7297

 

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