More on Amlin
Amlin
Insurer Amlin reported full-year pre-tax profits of £121.6m, ahead of consensus forecasts of around £108m and slightly ahead of the £120.3m reported in 2003. Profits were driven by a strong investment performance(investment income rose 58% to £50.6m).
The underwriting performance was respectable contributing £102.5m (2003: £119.4m) to the pre tax result with a small rise in the claims ratio being offset by a fall in the expense ratio. Heavy storm losses were partially offset by releases from reserves (£36.6m). Amlin, which operates Lloyds syndicate 2001, said losses from US hurricanes and Japanese typhoons during the 2004 totalled £74m (US$141m).
Despite the good results, prospects for insurers look weaker. Amlin reported an average renewal rate reduction of 4%, double the level of 2% seen last year, although better than Wellington, which saw a 5% reduction in rates. Airline renewals, which take place in the third quarter have fared particularly badly experiencing a rate reduction of 10%, although Amlin says that higher passenger numbers should ensure that the net reduction is around 6%. Aviation made up around 11% of gross earned premia last year.
Amlin, which operates only through the Lloyds market, reports that 2005 renewals have experienced (on average) a 4% rate reduction with rates for international property catastrophe and other large property risks coming under pressure. Rates for US catastrophe reinsurance renewals have been firmer with only small reductions in rates.
Amlin’s corporate (ie excluding syndicate funds) investment portfolio has performed well and has generated returns of 7%-8% while syndicate investments have generated a return on around 3%-3.5%, somewhat better than the 2% reported by Wellington and much superior to the 0.9% for the Merril Lynch short bond index. Amlin has been switching US$ surpluses into sterling, which has helped boost performance.
Amlin’s latest syndicate forecasts for the years of account 2002 and 2003 have been revised upwards. The current estimates are, respectively 21.7% (up from 17%-22%), 16%-21% (up from 14%-19%). The first set of estimates for 2004 have also been released and stand at 6%-11%. Amlin’s initial forecast for 2004 is low, partly due to the usual caution in making the preliminary estimates but also due to higher expected levels of loss. While the company expects this estimate to improve as the account develops (provided normal loss levels are experienced) it will not be as good as 2003 due to the large catastrophe losses in this year, including the US hurricanes and Japanese typhoon which are currently forecast to be the highest ever.
The improved syndicate forecasts are balanced by the worsening of the renewal rate reduction, although it has fared better than its smaller rival Wellington, we had expected firmer rates in the fourth quarter. The early indication of 2005 renewals are not very encouraging. On the whole Amlin’s prospects do not look very encouraging. Trading at 167.75p, the prospective PE of 7.5× is at the lower end of the sector range. The prospective yield of 4% is reasonable.
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