More on Amlin
Amlin:H1 results
Better than expected renewal rates, low claims levels and booming investment returns have seen Amlin record pre-tax profits of £134m for the half year to June 2005, up 56% on the previous first half and higher than for the whole of 2004.
The Lloyd’s underwriter will take a $110m(£60m) hit for Hurricane Katrina but remained positive of its full year prospects, announcing a 33% increase in interim dividend (to 4p) and committing to a £25m share buyback programme.
Gross earned premia increased by 8% to £33.9m as a result of Amlin’s increased ownership of Syndicate 2001 from 86% in 2003 to 100%, offsetting lower gross premia written. Gross premia written declined by 4.7% to £675.8m, for which no explanation is offered. While this may be due to more selective underwriting (which would be ultimately reflected in a better claims ratio) this could also be indicative of weaker markets.
The company reduced its reinsurance coverage slightly (from 12.9% to 11.2% of gross written premia) which boosted net earned premia by around £11.6m. The reduction in reinsurance payments could indicate that Amlin is ceding a slightly lower level of risk to the reinsurer’s-meaning it is taking on more risk itself, which could result in greater volatility in earnings.
A stable claims environment resulted in a claims ratio of 44%, only 2 points worse than in the same period in 2004. An improved expense ratio, 5% better than the first half of 2004 at 25%, resulted in a combined ratio of 69% (H1 2004: 72%).
Non-marine insurance (which contributed to 62% of the underwriting result) and marine insurance (which contributed to 16.7% of the underwriting result) saw improved combined ratios. The non marine combined ratio improved to 62% (H1 2004: 63%) due to a 4.6% increase in net earned premia and the reduction of reinsurance outgoings. The marine division’s combined ratio improved significantly to 68% from 95%, mainly due to release of reserves (13% of the combined ratio) and lower claims levels.
The generally favourable claims environment has seen Amlin release £30m of reserves in the first half of the year. Whilst Amlin says reserves are set above an actuarial best estimate, a worsening of the claims environment could see adjustments to this in the second half.
Investments contributed £41.3m to the half year result (H1 2004: £14.5m) due to a combination of better returns and the growth in the overall cash and investment base from £1.1bn at December 2003 to £1.6bn. Amlin invests the bulk of its cash (46%) in debt and the improved return reflects higher interest rates. Only 5% is invested in equities with the rest being in short term debt and cash.
The company is positive in its outlook for the rest of the year, but further storms in the Gulf of Mexico could result in large claims. The National Oceanic and Atmospheric Administration’s (NOAA) Climate Prediction Center (a US Government body) expects an “extremely active season”. According to the NOAA, a total of 18-21 tropical storms are expected this season (the average is 10), with 9-11 becoming hurricanes (the average is 6), and 5-7 of these becoming major hurricanes (the average is 2-3).
The share trades at 180.75p, on a prospective PE (2005 earnings) of 7x, in line with the sector with a yield of 4.5%.
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