Amlin plc - Interim Management Statement for the period from 1 July 2012

Argenta Comment: Amlin plc has today released an interim management statement. Like Hiscox, Beazley and Catlin, the company feels it is too soon to give any indications of the scale of the impact expected from Superstorm Sandy. The tone of the release is broadly encouraging reporting little catastrophe experience aside from Sandy and rate increases averaging almost 4% in the year to date.

Full Statement

The underwriting environment for the period from 1 July was encouraging, with rate improvements and limited catastrophe loss activity. Rate improvements have been achieved for more than 80% of the portfolio during the ten month period to 31 October and overall, renewal rate increases have averaged 3.8% in the period.

As previously reported, pricing for catastrophe reinsurance during 2012 has reacted strongly to the extraordinary loss activity of 2011. In our insurance markets, rates for US commercial property have steadily improved and we continue to achieve improvement in our UK commercial business.

Investment markets have continued to prove challenging, but Amlin's balanced portfolio of assets delivered good returns for the quarter.

Hurricane Sandy, which made landfall in the United States on 29 October, has caused material damage to the US east coast. Given the timing and magnitude of the event, and the fact that ongoing disruption in the affected area means information is limited, Sandy's impact is still to be determined. However, a favourable first nine months means we are well placed to absorb claims.

Amlin remains in a healthy financial position and is well capitalised to support growth as conditions improve and opportunities materialise. The core profitability of our London and Bermuda business is strong and profitability continues to improve in our UK business. Additionally, there is increasing evidence that the action taken at ACI is having a positive effect. In a low interest rate environment, our profit focused underwriting strategy should encourage the business to prosper.

Underwriting environment

The Group's gross written premium for the ten months ended 31 October 2012 was up 11.1% at £2,278.8 million (31 October 2011: £2,051.9 million). The average renewal rate increase was 3.8% (31 October 2011: 0.9%) with a renewal retention ratio of 84.5% (31 October 2011: 82.1%).

The underlying increase in gross written premium of £161.0 million, after taking account of renewal rate movements, was attributable to growth in Amlin London, Amlin UK, Amlin Bermuda and Amlin Re Europe.

The changes to premium by division are analysed in the table below

  Gross written premium to 31 October 2012 £ million Renewal rate change to 31 October 2012 % Renewal retention ratio to 31 October 2012% Gross written premium to 31 October 2011 £ million Renewal rate change to 31 October 2011% Renewal retention ratio to 31 October 2011%
Amlin London 981.0 4.9 84.3 880.8 1.1 83.5
Amlin UK 342.8 5.2 78.2 269.7 5.2 83.7
Amlin European Insurance 458.3 0.2 85.0 497.6 (0.5) 73.8
Amlin Bermuda 330.4 6.2 87.5 305.4 0.5 90.1
Amlin Re Europe 166.3 2.2 91.0 98.4 - -
Total/ Average 2,278.8 3.8 84.5 2,051.9 0.9 82.1

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

As previously reported, the period to the end of October 2012 saw a healthy increase in catastrophe reinsurance rates, following the extraordinary loss activity of 2011. North American catastrophe business achieved an average renewal rate increase of 8.1%, whilst our international reinsurance account achieved an average increase of 15.0%. Rate increases were more marked in loss affected territories, such as Australasia and Japan. Rate increases slowed from the second quarter, reflecting limited loss activity in the period and the fact that for a number of contracts, significant rate increases had been achieved in 2011. We expect catastrophe reinsurance pricing to remain strong, with our US and international books trading at near peak levels, with Hurricane Sandy helping to limit downward pressure.

Property and Casualty rates have continued to improve since the half year, generating an average renewal rate increase of 3.8% in the ten month period. The direct and facultative property business achieved an average increase of 8.2%. We expect that losses from Hurricane Sandy will add further positive momentum to US property rates.

Rates within our London Marine business were stable, with an average renewal rate increase of 0.5% to 30 October. Variation continued across classes. Liability and yacht business had average rate increases of 2.9% and 1.6% respectively, whereas war and specie classes experienced respective rate decreases of 2.4% and 1.9%.

The trading environment for Amlin UK remains positive, with an average rate increase of 5.2% for the year to date. Increases to fleet motor rates now average 9.4%. Elsewhere, property rates increased by 1.9% in the period and liability classes have also begun to show signs of improvement. Notably, employer's liability and public liability business achieved rate increases of 3.4% and 7.3% respectively for the ten month period. Recent strategic initiatives, including investment in new distribution channels and the addition of a new high net worth underwriting team, contributed to £99.6 million of new business.

In Continental Europe, market conditions continue to prove competitive, though rating levels remain steady. Action taken to improve the profitability of ACI's marine business is having a positive impact on the underlying performance of the business. The majority of changes to ACI's marine portfolio are complete and we believe that, with increased profit focus and direction, it is now in a position to grow income when market conditions in the Benelux improve. ACI's non-marine business continues to perform satisfactorily in competitive trading conditions.

Amlin Re Europe has continued to make good progress in line with original plans and has achieved significant growth in its client base. In the ten month period to 30 October, the business wrote €205.0 million of gross written premium, with the rating environment marginally positive. As previously reported, with the initial costs of start up being incurred ahead of development of earned premium, we do not expect the business to make a material profit contribution to the Group in the current year, however, we remain confident of its long term prospects.

Outwards reinsurance

Reinsurance expenditure in the period to 30 September was £342.5 million, an increase of 35.5%, representing 15.6% of gross written premium (Q3 2011: £252.7 million and 12.9%). The increase in outwards reinsurance expenditure reflects the increased costs of retrocessional programmes since the losses of 2011, greater cover bought by Amlin Bermuda, together with the purchase of a catastrophe bond. The increased expenditure has been more than offset by increased income in the nine months and this is expected to be the case for the full year.

Claims and reserves

The period to 30 September was a relatively benign period for catastrophe activity, in contrast to the prior year.

The only significant catastrophe loss to the Group in the period was Hurricane Isaac, impacting the US Gulf Coast in September. Estimated claims to Amlin from this event amount to approximately US$25 million (net of reinsurance and reinstatement premiums).

Net claims from 2010 and 2011 catastrophe events, including the New Zealand 'Christchurch' earthquake in February, the Japanese earthquake in March and the Thailand flooding in the second half of the year remain materially consistent with those disclosed in our 2011 Annual Report.
For Amlin European Insurance, there were no new large claims above €5.0m in the period and attritional claims patterns have continued to show improvement.

In the quarter to 30 September 2012, following the normal quarterly review of claims reserves, £16.4 million was released from reserves, bringing cumulative releases for the nine months to 30 September 2012 to £69.4 million (30 September 2011: £71.2 million).

Hurricane Sandy

During the last week of October, Hurricane Sandy travelled through the Caribbean and up the east coast of the United States causing extensive damage, particularly after its landfall in New Jersey. It is estimated to have been the largest Atlantic storm by diameter on record, although the wind speeds at the centre of the storm were only at category one status. The resultant damage is complicated, with multiple causes including wind damage, storm surge and flooding from rainfall. Damage is also spread over a large number of states. As non government agency insurance in the United States often excludes flood or in some cases storm surge damage, the actual insured claims and, in particular the claims impacting Amlin direct or through its reinsurance client base, are at this stage unclear.

Investment returns

The Group's investment return for the nine months to 30 September was 3.6%, with average funds under management of £4.1 billion. During this period bonds returned 3.9%, Libor plus 4.9%, cash and cash equivalents 0.4%, equities 9.5% and property 5.3%.

The asset allocation (based on allocations to sub-advisors) at 30 September 2012 was 50% bonds, 17% Libor+, 24% cash and cash equivalents, 6% equities and 3% property.

Other developments

On 17 August, Amlin announced the appointment of Shonaid Jemmett-Page, FCA, MA as an independent non-executive director of Amlin, effective 1 September 2012. On the same date, it was announced that Martin Feinstein would join and become Chairman of the Risk & Solvency Committee with effect from 1 September 2012.

On 20 September, Amlin announced that Charles Philipps and Richard Hextall would resign as directors of Amlin Underwriting Limited (AUL) with effect from 1 October 2012 and that Simon Beale would hand over his responsibility as Underwriting Director of Amlin London to Kevin Allchorne with effect from the same date. Simon Beale remains on the Board of AUL as a non-executive director.

As previously reported, Amlin Reinsurance Managers, Inc commenced trading on 1 October, operating from offices in New Jersey under the leadership of Paul Brauner. The operation seeks to establish a lead US market for casualty reinsurance targeting nationwide business with a focus on general and professional liability classes. The business will be sourced direct from US brokers and underwritten on behalf of Syndicate 2001.

Charles Philipps, Amlin's Chief Executive, commented "Our strong first half performance continued in the third quarter with solid progress achieved on a number of fronts, including at ACI. While the complexity surrounding Hurricane Sandy means that it will take time to establish a meaningful estimate of loss, we believe it will be readily absorbed and that it will help continue the improvement in US property insurance rates that has been evident so far this year"