Q1 Management Statement

RNS Number : 8521N

Amlin PLC

21 May 2015

 

Amlin plc

PRESS RELEASE

For immediate release

21 May 2015

Quarterly Management Statement for the three month period to 31 March 2015

Amlin has had a good start to 2015 with limited loss activity and an excellent investment return of 1.7% for the first quarter.

Underwriting

Gross written premium for the three months ended 31 March 2015 was £1,260.2 million (31 March 2014: £1,276.7 million). At constant rates of exchange, gross written premium decreased by 1.4%. Income growth from strengthening of the US dollar was largely offset by weakening in the Euro, reflecting the geographical diversity of Amlin's business.

Whilst our Reinsurance business benefitted from the prominence of its US Dollar revenue stream, income in both our Marine and Aviation and Property and Casualty businesses was impacted by weakness in the Euro.

Average renewal rates were down 3.5% (31 March 2014: decrease 2.3%) and renewal retention rates remained healthy at 89.1% (31 March 2014: 88.2%).

Following the transition in our 2014 results for North American windstorm exposed business to a seasonally adjusted earnings profile, there was a reduction in earned premium in the first quarter of approximately £20 million, compared to the 2014 period. The profile change reduces earnings in the first and second quarter, and to a lesser extent in the fourth quarter, with the majority earned in the third quarter reflecting the risk profile of the business.

Premium income by Strategic Business Unit (SBU) is analysed in the table below:

	Gross written premium to 31 March 2015 £ million	Renewal rate change to 31 March 2015 %	Renewal retention ratio to 31 March 2015 %	Gross written premium to 31 March  2014 £ million	Renewal rate change to 31 March 2014 %	Renewal retention ratio to 31 March 2014 %
Reinsurance	603.6	(6.3)	89.6	599.8	(4.7)	87.9
Property and Casualty	465.3	0.6	89.3	480.3	0.2	88.3
Marine and Aviation	191.3	(4.1)	87.1	196.6	(1.3)	88.1
Total / average	1,260.2	(3.5)	89.1	1,276.7	(2.3)	88.2

Note: Gross written premium by SBU is shown on a direct basis, excluding the impact of any intra group transactions.

Competition within Reinsurance lines remains challenging. Amlin has continued to be selective, focussing on areas where pricing meets acceptable rates of return. Overall, reinsurance renewal rates decreased by 6.3%. US catastrophe renewal rates reduced by an average of 6.5%, while international catastrophe renewals experienced average rate decreases of 10.5%. However, non-catastrophe reinsurance classes, which now amount to approximately 20% of our estimated annual premiums, saw less pressure, with renewal rates decreasing by 4.8% and new business of £58.8 million being added in the period. We believe our strong client position, enhanced by Leadenhall Capital Partners which now has funds under management of US$1,921.0 million (31 December 2014: US$1,880.8 million), continues to differentiate Amlin from other markets. Income includes amounts of £31.2 million relating to multi-year deals.

US property and casualty rates were down 2.8%. New business of £38.1 million was added in the period across property and casualty classes. In our UK commercial business, UK fleet motor rates continued to rise, with an average of 6.3% in the first three months.

Renewal rates for Marine and Aviation business came under pressure across classes, but most notably for energy, which saw a rate decrease of 13.3% as falling oil prices impacted construction and drilling activity.

Outwards reinsurance

Reinsurance expenditure, excluding the cost related to Tramline Re Limited, in the three months to 31 March 2015 was £203.1 million, representing 16.1% of gross written premium (31 March 2014: £211.4 million and 16.5%). The decrease represents savings achieved through the purchase of one group-wide retrocessional programme, and more attractive terms. Increased cover was acquired, with lower retentions, protecting both the Reinsurance and the Marine and Aviation businesses.

In December 2014, the Group acquired coverage for US earthquake and storm and European windstorm perils up to $200 million from a Bermudian special purpose insurer, Tramline Re II Limited, which in turn issued a catastrophe bond into the markets. The transaction provides the Group with fully collateralised protection over a four year period with effect from 1 January 2015.  The costs relating to Tramline II of £52.7 million have been recognised in full during the quarter, but will be earned across the four year term of the contract.

The transition to a seasonal earnings profile for outwards reinsurance costs associated with the North America Windstorm business has led to a reduction in earned reinsurance expenditure of approximately £13 million for the first quarter, although this difference will unwind on a full year basis.

Claims and reserves

There were no major catastrophe losses in the period and large losses were modest at £6.6 million (31 March 2014: nil and £7.5m). Following action taken in the UK part of the Property and Casualty business, there are good signs of its claim ratio returning to a more respectable level.

Claims reserves for prior years have continued to run-off positively with releases in the first three months totalling £29.2 million (31 March 2014: £17.4). Releases largely reflect positive claims development within the Reinsurance and the Property and Casualty businesses.

Investment returns

The Group's investment return for the quarter ended 31 March 2015 was ahead of expectations at 1.7%, with average funds under management of £4.4 billion. During this period bonds returned 0.9%, zero duration bonds returned 1.0%, cash and cash equivalents 0.1%, equities 5.7% and property 2.5%.

The asset allocation (based on allocations to sub-advisors) at 31 March 2015 was 21% bonds, 50% zero duration bonds, 5% cash and cash equivalents, 17% equities and 7% property. The average duration of the portfolios at the end of March was 0.4 years. Towards the end of April the equity weighting was reduced to 16%, with the proceeds invested predominantly in zero duration bonds. 

We believe that the outlook for global economic growth is supportive for equities and property but investment return accumulation is expected to be more muted for the rest of the year with volatility picking up as the US Federal Reserve Bank starts to raise rates from current historically low levels. 

Charles Philipps, Amlin's Chief Executive, commented: "We have had a good first quarter bearing in mind the more competitive market conditions which demand high levels of diligence in risk selection. We are also realising a number of benefits from the changes made to our organisational structure in 2014, in particular with the combination of outwards reinsurance programmes, from increased knowledge sharing and the ability to offer a wider product offering to some clients. We expect our business and geographical diversity, which has grown over recent years, to be of increased importance in the current environment."

Enquiries:
Charles Philipps, Chief Executive, Amlin plc	0207 746 1000
Richard Hextall, Chief Finance & Operations Officer, Amlin plc	0207 746 1000
Media
Ed Berry, FTI Consulting	0203 727 1046

 

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