Interim Management Statement

RNS Number : 1429W

Amlin PLC

15 November 2010

 



Amlin plc

PRESS RELEASE

For immediate release

15 November 2010

Interim Management Statement for the period from 1 July 2010

The trading environment in the third quarter was mixed. Downward pressure on premium rates persisted in many areas, but upward momentum continued in UK fleet motor and more positive signs emerged in offshore energy and marine liability. Following the Chilean earthquake in February, which is the largest international catastrophe loss on record, the period witnessed the second major earthquake of the year, in New Zealand in early September, for which the insured loss is estimated at between US$2.0 billion and US$4.5 billion. On a more positive note, despite a high number of named storms, the Atlantic windstorm season passed without major insured losses. Elsewhere, investment markets, particularly equities, traded better than in the first half of the year as market sentiment improved.

The Group continued to make significant strategic progress in the period, with the establishment of a new Zurich-based reinsurance business trading as Amlin Re Europe. Important progress also continues to be made with the integration of ACI and we remain on track with business and operational plans.

Underwriting environment

The Group's gross written premium was up 39.4% for the ten months ended 31 October 2010 at £1,916.6 million (31 October 2009: £1,374.6 million). ACI represented £384.9 million of this increase following its acquisition in July 2009. The underlying increase for the pre-existing Amlin business was £157.1 million. Excluding an adjustment of £45.8 million for Amlin UK binder business following improvements in estimates of business written under binding authorities, the growth is attributable to new business generated by Amlin UK, notably within UK fleet motor, and also in Amlin Bermuda's direct account.

The average renewal rate decrease for the Group during the first ten months of 2010 was 1.9%, with renewal retention stable at 84.7%. This is analysed by division in the table below:

	Gross written premium to 31 October 2010 £ million	Renewal rate change to 31 October 2010 %	Renewal retention ratio to 31 October 2010 %	Gross written premium to 31 October 2009 £ million	Renewal rate change to 31 October 2009 %	Renewal retention ratio to 31 October 2009 %
Amlin London	821.5	(3.0)	85.9	822.4	4.4	84.4
Amlin UK	248.8	1.5	83.5	140.8	2.1	83.1
Amlin France*	38.2	n/a	74.7	25.3	n/a	n/a
Amlin Bermuda (Direct)	260.8	(4.4)	89.6	223.7	5.7	92.4
Amlin Corporate Insurance	547.3	(0.4)	81.7	162.4**	n/a	n/a
Total / average	1,916.6	(1.9)	84.7	1,374.6	4.4	85.8

* Amlin France includes ACI France in 2010.

** Represents gross written premium (before deduction of brokerage) in the period from acquisition.

Catastrophe reinsurance business continued to experience downward rating pressure. US catastrophe reinsurance rates have declined on average by 5.4% in the first 10 months although pricing remains only marginally below the peak levels attained in 2007. Rates within the international account were down 0.5%, supported by rate increases in territories that were loss affected in 2009. Earthquake losses in Chile and New Zealand are likely to generate rate increases in their respective territories but are not expected to alleviate downward pressure elsewhere. Given the profitable margins that remain available, Amlin Bermuda has increased its direct reinsurance account, as anticipated, during 2010 by 15.8% to US$401.6 million.

Property and Casualty rates have decreased by 1.7% in the period. Competition in this area remains strong with our US direct and facultative property insurance account experiencing average rate decreases of 4.9% and our US casualty business a more modest 0.8%. We continue to consider pricing in the US commercial insurance market to be poor and there are no signs of imminent improvement.

Within our London Marine business rates were broadly flat. The energy account witnessed an average rate decrease of 3.6%, with downward pressure in the aftermath of a benign 2009 windstorm season. However, following the Deepwater Horizon oil rig disaster, pricing, particularly for risks covering drilling in deeper water, is seeing rate rises of up to 50%. Upward rating pressure is also building in our marine liability, hull and specie accounts.

The trading environment for Amlin UK has continued to improve since 1 July, with an average rate increase of 1.5% for the year to date. Increases to fleet motor rates now average 2.9%. Average increases of 4.5%, 11.7% and 3.7% were achieved in August, September and October respectively. Overall, motor income has increased by 36.2% to £94.1 million, with new business amounting to £24.0 million. Other UK commercial lines remain competitive.

Market conditions for ACI also remain competitive with rating pressure evident in most areas of the company's portfolio. The marine account is the main area of focus and further pruning of poorly performing accounts is intended over the next quarter. Competition in the cargo account remains strong and consequently re-underwriting efforts typically lead to loss of business rather than improved renewal rating. However, we have been pleased with the renewal of a number of key parts of the Antwerp commodity cargo portfolio with significant rating improvements achieved on loss making accounts. Antwerp, as previously noted, has performed poorly in 2010 but the efforts being made to improve the portfolio will put the account into a better state in 2011.

The ACI Property and Liability accounts continue to offer acceptable margins given the stage of the local underwriting cycle. However, there is limited evidence of improvement in the rating environment.

Claims and reserves

The major catastrophe loss in the period since 30 June 2010 has been the New Zealand earthquake which occurred on 4 September. The scale of insured damage arising from this event remains uncertain, with current modelling agency insured loss estimates ranging from US$2.0 billion to US$4.5 billion. Amlin's exposures lie mainly within its international property catastrophe account. Given the uncertainty surrounding this event we have reserved towards the top end of the range of estimates and our current estimated claims for the earthquake are US$75 million. Our estimated loss for the Chilean earthquake remains materially unchanged from that reported in our interim report and we continue to believe our reserve to be conservative.

Outside of catastrophe reinsurance the level of attritional claims activity for the year has been moderately higher than recent years. In particular, our aviation business has exposure to a number of medium size airline crashes in the quarter and the ACI property account has experienced a more active third quarter for fire and engineering losses.

In the quarter to 30 September 2010, following the normal quarterly review of claims reserves, £18.3 million was released from reserves, bringing cumulative releases for the nine months to 30 September 2010 to £81.4 million (30 September 2009: £131.5 million). As reported previously, releases in 2009 were boosted by two factors: first, and most importantly, claims experience on prior underwriting years was better than expected across a number of classes, and second, a change of approach to UK commercial claims which contributed an additional £16 million to profits.

Investment returns

During the third quarter, concerns about sovereign debt that had impacted market sentiment during the first half of the year faded. Expectations that the US Federal Reserve Bank would introduce further quantitative easing to support economic recovery also grew. The resulting background for both risk and safe-haven assets led to strong investment returns in the period since 30 June.

The Group's investment return for the period to 31 October was 3.9%, with average funds under management of £4.2 billion. During this period bonds returned 5.2%, Libor+ 1.6%, cash and cash equivalents 0.2%, equities 6.5% and property -0.6%.

The investment allocation at 31 October 2010 was 59% bonds, 13% Libor+, 19% cash and cash equivalents, 7% equities and 2% property (based on allocations to managers).

Strong investment returns in the ten month period leave less scope for similar returns to be repeated in the near term. However, with bond yields at historically low levels there is little further room for capital appreciation.  We have therefore started to reduce some of our interest rate risk.

Integration of Amlin Corporate Insurance N.V.

ACI's overall performance in 2010 to date has benefited from strong investment returns but the improvement in underwriting returns from the actions it has been taking in its marine portfolio is not yet being reflected in its earnings. While improvement is clear in some parts of the marine account, the Rotterdam cargo accounts remain at depressed levels. However, as noted above, efforts in Antwerp to correct performance are now progressing well and further action in Rotterdam is currently being taken to return the business to acceptable levels of performance.

Work continues to separate ACI from the operations of its former sister companies within the Fortis Group. The systems replacement programme, whereby ACI is migrated onto Amlin's existing IT platform, also continues to be a key area of focus and steady progress is being made towards the targeted completion date of mid 2011.

In the 10 months to 31 October 2010, £12.4 million of ACI separation and integration costs had been incurred by the Group (30 June 2010: £11.2 million). In addition to expensed items, expenditure of £11.8 million on the replacement IT platform has been capitalised (30 June 2010: £4.1 million). A greater proportion of these costs has been expensed at this stage of the programme, reflective of the relatively greater spend on research compared to systems build. The balance between expense and capital is expected to shift through the programme life cycle.

Amlin Re Europe

On 7 October we announced that we had completed the change in the corporate domicile of our wholly-owned subsidiary Amlin Bermuda Limited from Bermuda to Switzerland. This was completed following the receipt of approvals from the Swiss Financial Market Authority and the Bermuda Monetary Authority.

The redomiciled Swiss company is named Amlin AG and the existing operations of Amlin Bermuda Limited now operate as a Bermuda-based branch of Amlin AG. Amlin AG is capitalised at US$1.4 billion, placing the company amongst the leading independent reinsurers in terms of financial strength with excellent credit ratings (A (Stable) from S&P, A (Excellent) from AM Best and A2 (Positive) from Moody's).

Amlin AG has been established as an independently capitalised, full service reinsurance operation. The company's new Zurich-based underwriting business (trading as 'Amlin Re Europe') offers strong security and service delivery to European reinsurance buyers and brokers. Amlin Re Europe is able to write all major non-life reinsurance classes and products with a team of experienced and professional underwriters with local knowledge of each European market. Amlin AG has already recruited 28 high quality professionals and intends to expand further as the business grows.

We do not expect Amlin Re Europe to make a material contribution to the Group's gross written premium for the current calendar year. In the period to 31 October, Amlin Re Europe had incurred expenses, including set up costs, of £1.5 million.

Charles Philipps, Amlin's Chief Executive commented, "While we are trading in tougher market conditions and this year have witnessed two of the largest non-US natural catastrophes in a long while, we remain on track to deliver a good current year return for this point in the insurance cycle, and are still able to generate underwriting profits in most areas."

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
Nick Henderson, Financial Dynamics	0207 269 7114
Media
Hannah Bale, Head of Communications, Amlin plc	0207 746 1118
Nick Henderson, Financial Dynamics	0207 269 7114

 

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