Bulk of risk transfer industry in the black despite tough trading conditions

Superstorm Sandy, low investment results and fewer positive reserve developments negatively impacted the profits of commercial insurers and reinsurers to differing degrees. However, most enjoyed a better year than the catastrophe-blighted 2011.

Revenue growth was a little more mixed. Premium growth proved difficult for insurers and brokers in Europe and other developed economies, although sustained rate increases in the US and expanding emerging markets were sources of extra revenue for many companies.

However, for some insurers—most notably AIG—these higher premium prices were offset by lower volumes as they turned away badly performing and unattractive business.

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Reinsurers also reported higher rates in 2012 and again at the January 2013 renewal. But rate increases were mostly marginal. In the absence of large catastrophes, and as new capacity and higher profits increase capital levels, reinsurance prices are likely to come under renewed pressure this year.

Insurers stand firm

AIG

AIG’s group operating income for 2012 was $6.6bn compared with $1.2bn in 2011, despite a $4bn fourth quarter loss from write-downs associated with the sale of the company’s aircraft leasing arm, International Lease Finance Corp.

Despite the fourth quarter catastrophes, AIG showed healthier underwriting results and stronger investment returns in 2012, said Peter Hancock, Head of Property and Casualty at AIG. The company’s expense ratio has reduced for eight consecutive quarters—2.6% average for 2012—as AIG shifted its business mix away from unattractive lines, made better use of analytics and pricing models and reduced claims leakage, said Mr Hancock.

Property and casualty premiums were 1.2% lower at $34.4bn in 2012. Premium at AIG’s commercial business was down 3.8% to $20.3bn, reflecting steps taken to refine the business mix and risk selection, most notably in US casualty.

Global commercial rates were 6.0% higher on average in the fourth quarter, 8.6% in the US where property rates increased 14.6% and workers’ compensation prices increased 12.4%. Conditions in Europe and specialty lines were softer and more competitive, said Mr Hancock.

Price increases were, however, offset by AIG’s tighter underwriting discipline. Commercial premiums in the Americas fell 8% to $13bn while premiums in Europe, Middle East and Africa fell 2.3% to $4.6bn, although commercial insurance revenues in Asia were 7.2% higher at $2bn.

AIG underwrote 12.7% less commercial casualty insurance in 2012 at $8.6bn, although property business increased by 10% to $4.2bn.

The combined ratio for commercial business was 109.2%, a 0.6 percentage point deterioration on 2011. The commercial sector accounted for the bulk of catastrophe losses, which reached $2.2bn in 2012, while prior year reserve additions cost $290m in 2012.

Zurich Insurance

Zurich Insurance reported lower profits for its non-life businesses in 2012, mainly as investment returns fell on low bond yields. However, the insurer saw premiums increase on the back of rate increases in the US and growth in international business.

During 2012 Zurich produced a group net income of $3.9bn, a 3% increase on 2011. However, profit from nonlife insurance was 7% lower at $2.1bn, reflecting a 10% fall in investment income, above average catastrophe losses and lower reserve releases.

Zurich’s Global Corporate business produced a $496m operating profit in 2012, compared with $169m in 2011. The underwriting result swung from a $300m loss in 2011 to a $48m profit in 2012, reflecting the lower burden of catastrophes and the benefit of improving rates.

Despite an underlying improvement, Global Corporate business produced a combined ratio of 99.1%, reflecting the impact of Sandy. The combined ratio in 2011 was 105.6%, a year marked by record catastrophes.

Zurich continued to manage its corporate book in 2012, pulling back in some areas, however the Global Corporate business grew overall.

Gross premiums for Global Corporate increased 8% to $8.6bn, reflecting the transfer of business from North America Commercial to Global Corporate, as well as higher rates and strong business retention levels. There were also significant account wins, including those in Europe. Average rate increases were 5% for Global Corporate overall, and an average of 8% in North America. Rates increased in energy, workers’ compensation, international property and European motor.

Allianz

Munich-based Allianz SE reported higher profits and revenues in 2012. It enjoyed higher rates and strong growth from emerging markets, in particular in Latin America.

The company also made progress in improving its combined ratio, which was sub-100% in most markets, reflecting fewer catastrophes in 2012.

Allianz reported an impressive 21% rise in operating profits to €9.5bn, its highest since the start of the financial crisis. Revenues were 3% higher at €106bn.

Overall, property and casualty insurance gross written premiums grew by almost 5% to €46.9bn in 2012, achieved through a 50:50 mix of rate increases and new business.

Allianz Global Corporate & Specialty (AGCS), the group’s speciality and corporate insurer, also grew significantly. Gross premiums written at AGCS exceeded €5bn for the first time since the unit was established in 2006 and premiums were 8% higher than in 2011 at €5.3bn. The unit attracted some €967m of new business in 2012.

Allianz is looking to grow AGCS further, in particular in emerging markets. AGCS premium income from South America, Asia, Russia and Africa is expected to increase from the current level of €600m to around €2bn within the next five years.

Despite higher revenues and fewer catastrophes in 2012, AGCS reported a lower operating profit of €420m in 2012 compared with €549m in 2011. The combined ratio for AGCS also deteriorated to 96% in 2012, compared with 93% in 2011.

The deterioration reflected increased loss activity—both large and catastrophic—at AGCS. The 2011 combined ratio also benefited from an extraordinary subrogation payment from prior years relating to the World Trade Center loss.

AXA

French insurer AXA reported a 2% increase in its revenues to €90.1bn for 2012, although net income fell 4% to €4.2bn.

AXA Corporate Solutions (ACS), the group’s large commercial arm, however, managed to increase both turnover and profits to hit the targets set by the group. The corporate insurance arm of the French insurance group managed a net profit of €166m, up 17% on 2011.

Revenues at ACS were 3% higher at €2.1bn. The majority of the growth was due to rate increases, with revenues rising by 17% in construction, 9% in property and 2% in motor, offsetting a 6% fall in aviation and a 2% reduction in liability due to the non-renewal of a large contract.

One third of turnover was delivered from Europe’s largest companies, one third from high growth developing markets and one third from smaller European companies with a turnover of between €600m and €2bn.

In the mature markets AXA said that it would aim to improve its penetration rate in the upper middle market and new technologies segments. For the developing markets, ACS said it will continue to focus on Asia, the Mediterranean (including North Africa) and Latin America and central and eastern Europe, which is managed from Germany.

AXA Corporate Solutions reported a combined ratio of 97.8% in 2012 compared with 97.9% in 2011.

ACE Group

ACE saw its net income leap 76% to $2.7bn in 2012, reflecting a 11% increase in underwriting income to $1.2bn and a combined ratio of 93.9%.

ACE’s insurance business in the US produced a combined ratio of 97.1% for the full year compared with 93.8% in 2011. The international insurance business combined ratio was 89.7% in 2012 compared with 94.5% last year.

The property and casualty combined ratio for the fourth quarter was 105.5%, which included a net loss from Superstorm Sandy of $502m and a pre-tax charge for asbestos and environmental and other run-off business of $140m.

XL Group

Catastrophe losses in the fourth quarter and lower investment results also impacted the results of XL Group.
The group’s reinsurance business helped it produce an overall $651.1m net profit in 2012, having suffered a $474.8m net loss in 2011.

However, XL Group’s insurance business produced a full year underwriting loss of $24.9m and a $1m net loss for the year, compared with $433.5m and $16.4m respectively in 2011. The 2012 combined ratio for XL Group’s insurance business was 100.6% in 2012 and 111.8% in 2011.

Gross premiums for XL Group’s insurance business were 5.1% higher at $5.2bn in 2012, reflecting an increase in casualty and professional lines business.

“The full year results also illustrated the steady improvement of our insurance segment and the continuing solid performance of our reinsurance segment,” said XL’s Chief Executive Officer Mike McGavick.

Swiss Re Corporate Solutions

Swiss Re Corporate Solutions, the direct commercial business of the Zurich-based reinsurer, grew its net earned premiums by 18.4% to $2.3bn. Growth was across all lines of business, although is not expected to continue at such high levels, the company said.

The unit’s net income increased by 142% to $196m, while the combined ratio for Corporate Solutions was 96.2% in 2012 compared with 107.9% in 2011, reflecting positive reserve developments of 3.9 percentage points.

Mapfre

Spain’S Mapfre posted an attributable result for 2012 of €665.7m, which represents a decrease of 30.9% over the previous year due to provisions and impairments that amounted to €404.8m. But the company’s recurring result grew by 9.6% to €942m.

For the domestic Spanish market, which contributes 33% of Mapfre’s total premiums, premiums fell by 4.5% to €7.51bn in 2012. But this compares to a 5.3% contraction of the market. As a result, Mapfre increased its market share in Spain by 1%.

The company’s International Insurance Division reported premiums of €10.83bn, the bulk of this coming from Latin America where Mapfre continues to be the market leader. It recorded a 25.8% increase in premiums in Latin America.

RSA

UK insurer RSA Insurance Group saw its top line grow and profits fall last year. The operating result was £684m in 2012 compared with £727m in 2011, reflecting lower investment income, as well as storm losses in the UK and earthquake damage in Italy.

The effect of falling bond yields reduced the investment result by 11% to £431m in 2012. Low bond yields also forced RSA to lower its dividend payout ratio, which was said to be unsustainable given the outlook for bond yields.

Gross premiums for the group were up 5% to £8.4bn, reflecting rate increases and growth in emerging markets. The average rate increase on renewed business was 4%.

Premiums from the UK and Europe were slightly down at £3.7bn, along with Scandinavia where they fell to £1.8bn. In contrast premiums grew in Canada to £1.6bn and in emerging markets to £1.2bn.

Overall, RSA produced a combined ratio of 95.4%, only slightly worse than the 94.9% in 2011.

Reinsurers post higher profits on back of fewer nat cats

A benign year for natural catastrophes helped the world’s two largest reinsurers post higher profits in 2012.

Munich Re said that it expects to make a profit of €3.2bn in 2012 compared with just €0.71bn in 2011, a year marked by near record industry catastrophe losses. Swiss Re increased its net income by 60% to $4.2bn.

Almost all of Munich Re’s profit was down to the performance of reinsurance, which contributed €3.1bn to the group result. The combined ratio for property-casualty reinsurance was 91.0% in 2012, compared with 113.8% in 2011.

Meanwhile the combined ratio of Swiss Re’s reinsurance business was 80.7%, compared with 104% in 2011, reflecting lower than expected catastrophe losses and positive reserve developments that flattered the combined ratio by 8 percentage points. Adjusting for the reserve development the combined ratio at 90.1% would have been closer to that of Munich Re.

The Zurich-based reinsurer saw its net income from reinsurance increase by 172.1% to $3bn. Although Munich Re has yet to report its 2012 revenues, Swiss Re reported a 21.6% increase in non-life reinsurance premiums to $12.3bn.

Swiss Re also increased its reinsurance book at the January 1, 2013 renewals—it achieved 11% top line growth driven by structured solutions and solvency relief transactions in Europe and the Americas.

Price increases at the renewal were 2%, although prices were slightly down in Europe and Asia due to increased competition, it said.

Munich Re, which sees just over half—or €9bn—of its reinsurance business renew on January 1, said that price increases were marginal at 0.5% overall, while terms and conditions remained stable.

The reinsurer shrank its reinsurance book slightly at the January renewal—by 1.5%—cancelling Ä916m of reinsurance contracts because they did not meet profitability targets.

Hannover Re, which renewed some two thirds of its €5.8bn book of treaty business in January, said that overall rates had increased by 1%. It shrank its book of German business, where rates were 1.8% down and some clients increased retentions. But it grew its book in the US where rates increased by 0.9% overall and by 10–30% for contracts hit by Superstorm Sandy.

French reinsurer Scor, which renewed €2.5bn in January, increased the volume of reinsurance it writes by 9% at the January renewal. The increase in premium volume reflected a large quota share treaty written with one Asian client, as well as a ratings upgrade in 2012 that saw its financial strength rating restored to A+. Scor reported that rates on the renewed business had increased by 1.9% on average.

Brokers’ revenues grow but Willis makes loss

The three big insurance brokers all reported higher revenues in 2012, although Willis reported an overall loss for the year due to sizable write-downs and lower revenue growth.

Aon, Marsh & McLennan Companies (MMC) and Willis Group all saw growth in their international business and benefited from improving rates in the US and better prospects for their employee benefits business.

Aon posted a 6% increase in operating profit to $1.5bn while Marsh reported a 16% leap to $1.4bn. In contrast, Willis reported a net loss of $446m for the full year, reflecting charges of $944m against its North America business and changes in the company’s remuneration programme.

All three brokers reported increases in revenue, albeit to varying degrees. Aon posted a 4% increase in organic revenue from insurance broking in 2012 to $7.6bn, while Marsh reported underlying growth of 5% in its insurance broking business to $6.6bn. At Willis, revenues from commissions and fees increased 3% to $3.5bn.