Hard market ‘tailwind’ to drive growth in corporate and specialty at Aviva

Insurance group Aviva is investing in its UK and international commercial and corporate specialty business to drive growth in coming years, because it sees “highly supportive conditions” for profitable expansion. The UK commercial general lines insurance business, which includes the London market international specialty book, accounts for about 17% of the group’s operating profit. During an investor presentation this week, CEO Amanda Blanc and her general insurance senior team explained that the commercial business is a “material contributor” to group performance and delivers an attractive Solvency II return on capital. The commercial lines business delivers the group roughly £800m in Solvency II diversification benefit, supports diverse earnings and lowers reinsurance costs, said Aviva. The group is banking on the commercial, corporate and specialty business to remain a key expansion area, providing cash, operating profit and gross written premium growth. Aviva will therefore “enhance capacity” across all segments of its commercial lines business and aims for gross written premium growth of 9% between 2020 and 2024. The group’s Global Corporate & Specialty (GCS) business will be a particular focus area. Aviva estimates this market to be worth roughly $38bn worldwide. It has an appetite of $15bn to $20bn of this business. Aviva’s distribution in this segment comes via Lloyd’s, the wider London market and international brokers. From a carrier’s perspective, market conditions are positive for such specialty business and wider commercial and corporate UK risks. Aviva estimates that property market prices were up 17% and casualty 7% between the fourth quarter of 2020 and the third quarter of 2021. The insurer said the “favourable rate” will slow but “remain attractive” in 2022. Aviva sees four key factors that will drive continued profitable growth in the commercial and specialty insurance market. These are: Digital adoption by which brokers will see digital efficiency improvements, increased customer demand in micro and small segments, and more direct opportunities. Market consolidation in the broking sector, which increases the demand from customers for closer and longer-term relationships. Increased demand for loss prevention and risk mitigation services and support. “Risk management plays an increasing role in client expectations,” said Aviva. Emerging risks are providing opportunities for forward-thinking insurers in areas such as mobility and electric vehicles/autonomous cars, cybercrime and climate change. Aviva’s UK commercial lines delivered gross written premium of £2.3bn in 2020, up from £1.7bn in 2017. During this period, the underwriting result has improved from £31.2m to £85.8m, excluding Covid-19 impacts, as the combined ratio fell from 97.9% to 95.4%. Aviva’s plans for growth in the UK corporate and international specialty markets are particularly ambitious. In 2017, this business generated premiums of £700m on the back of a combined ratio of 98.8%. The aim is to grow this book to £1.6bn by 2024 and deliver a combined ratio of less than 94%. This strategy will be driven by: Underwriting-led growth adding underwriting capacity to increase market share and broaden distribution capacity. Maintaining a tight focus on operational efficiency. The group has managed a 7% reduction in the expense ratio on a CAGR basis between 2018 and 2020. Pricing sophistication through data-led analysis to help improve technical capabilities and decision-making. Enhanced risk exposure monitoring through “accurate risk management”, supported by “comprehensive” reinsurance cover. In this segment, the group seeks to “leverage the hard market tailwind” through underwriting capacity, digital growth and increasing its distribution reach. Aviva has been through something of a rollercoaster ride in recent years as it consolidated the business through the sale of various overseas businesses, such as those in Italy and Poland. It has been regularly predicted as a takeover target for bigger European and international rivals. Blanc’s turnaround strategy, however, appears to be bearing fruit and risk managers should welcome its ambitions in the corporate and specialty space, as choice remains relatively limited for those carriers able to offer a “full service”.

Hard market ‘tailwind’ to drive growth in corporate and specialty at Aviva

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