Industrial insurers post healthy numbers to support continued stable market

Its non-life business managed to increase revenues and profits in what remains a challenging market and despite a higher combined ratio that was impacted by higher than normal catastrophe claims. The Munich-based insurance group’s results and comments were largely in line with figures and comments posted by rivals such as Zurich, AXA, XL, ACE, RSA and MAPFRE in recent weeks. The big industrial insurance groups are doing fine, despite continued soft non-life market conditions and rising claims. Most are talking a reasonably tough game and state that they will turn away inadequately rated business when necessary and are happy to lose premiums if required.hideBut there is no sign of a real hardening in terms and conditions that could make coming renewals uncomfortable for larger corporate insurance buyers in Europe, just as can be concluded from the numbers and comments provided by the leaders of the top international broking groups (see broker results analysis). Notably, some of the big insurers are still able to benefit from reserve releases from prior year underwriting despite widespread predictions that the release boom is surely over. And solvency levels remain healthy amidst a confident mood in which many companies feel easily strong enough to continue to hand capital back to investors through share buy backs and dividends. Allianz Group’s revenues in the third quarter grew by 11.4% to €24.5bn compared with €22bn at the same point last year. Quarterly operating profit grew by 2.3% to €2.1bn, from €2bn in the third quarter of last year. Quarterly net income of €1.3bn was impacted by a higher tax expense and fell by 8.8% from €1.4bn. Michael Diekmann, CEO of Allianz SE, said: "We increased our nine-month operating profit by 19.8% to €6.1bn. With this strong performance, I expect our full-year operating profit to trend towards the upper end of our target range of around €7.2bn plus or minus €500m. Also, for the first time since 2005 we are likely to end the year with total revenues above €100bn." The German group's capital position deteriorated slightly to a solvency ratio of 168% as of September 30, 2010, compared with 170% at the end of the second quarter last year. Shareholders' equity increased by 2.5% to €44.9bn as of September 30 this year from €43.8bn at the end of June. Non-life gross premiums written increased by 3.6% to €10.6bn, compared with €10.2bn in the third quarter of 2009. Non-life operating profit grew by 8.8% to €1.1bn, compared with €1bn in the third quarter of last year. The combined ratio worsened slightly to 97.1%, compared to 96.9% at this point last year. Claims from natural catastrophes in the third quarter totalled €307m and accounted for 3% of the combined ratio. A run-off ratio of 3.4% offset the high NatCat impact, said Allianz. "For natural catastrophes during the first nine months, about €1.1bn was used worldwide to pay the claims of our policyholders and to build provisions for these occurrences. Higher-than-expected NatCat impact aside, the segment substantially improved its operating profit in the third quarter. This was evidenced by improvements in the accident year loss ratio excluding natural catastrophes. At 69.1%, it is below 70% for the first time in eight quarters. In addition, prices in several core markets continued to rise, and are expected to keep rising in 2011," said Oliver Bäte, Chief Financial Officer of Allianz SE. Zurich Financial Services Group reported a business operating profit of $1.2bn and net profit of $751m for the third quarter. Zurich said that its non-life business benefited from past rate increases ‘earning in’ and that it had managed to successfully continue targeted rate increases into the third quarter. The results continued to be impacted by the high catastrophe- and weather-driven events particularly in the first half of the year, said the Swiss-based group. The nine month business operating profit reached $3.5bn, a decrease of 13% against last year. Net profit for the period was $2.4bn, a fall of 18%. Annualised return on equity (ROE) was 10.7% for the nine months. Total group business volumes, including gross written premiums, policy fees, insurance deposits and management fees, reached $50.2bn, a decrease of 1% or flat on a local currency basis, said the group. Shareholders' equity reached $31bn, a 6% increase over year end after paying $2.2bn in dividends. The Solvency I ratio was up 50% over year end to 245%. Zurich’s Chief Executive Officer Martin Senn said: “Our core businesses continued to deliver a robust operating performance in spite of the difficult economic environment in our major markets. In General Insurance [Non-life], we are managing the business with a strong focus on protecting profit margins, as demonstrated by our successful efforts to implement targeted underwriting actions. We are investing in growth markets, while continuing to focus on sustained profitability, operating efficiency and effective risk management.” Dieter Wemmer, Chief Financial Officer, added: “Our capital and regulatory solvency positions remain strong and we are confident that we are well prepared for new regulatory requirements.” Business operating profit within non-life was $2bn, a reduction of 22%. The group said that the decrease was mainly attributable to a higher occurrence of weather-related losses globally, the earthquake in Chile in the first quarter, a continuing decline in investment returns and a goodwill impairment charge of $104m in Russia in the third quarter. “Rate increases and targeted underwriting actions implemented over past quarters contributed to improvements in the underlying loss ratio thereby compensating for the lower investment income. However, the higher occurrence of severe weather and catastrophe-driven events, particularly in the first half of 2010 compared with the prior year, combined with lower volume of earned premiums, resulted in a deterioration of the combined ratio,” said Zurich. It added that lower volumes were driven by a continued decline in customer exposures because of ‘depressed’ levels of economic activity, a competitive market environment as well as its continued ‘disciplined approach’ to underwriting. “Demonstrating the strong focus on protecting profit margins through targeted underwriting actions, average rate increases of 2 percentage points were achieved during the first nine months of the year in line with trends at the half year,” explained the group. At the end of last month AXA reported that its total revenues were up 3% to €70.5bn. Life & Savings revenues were up 1% to €44bn while non-life revenues were also up 1% to €21.4bn on the back of an overall price increase of 3%. Asset management revenues were up 6% to €2.5bn, said AXA. “Our top line trends for the first nine months are in line with those observed in the first semester, with a continued focus on disciplined growth. This will allow us in the short term to adapt to the current environment, improve profitability where needed, and be prepared to accelerate growth in the medium term,” said Henri de Castries, Chairman and CEO of AXA. “In property & casualty, price increases accelerated slightly in the third quarter across the board. Combined with more selective underwriting especially in commercial lines, this led to an increase in revenues of 1%,” continued Mr de Castries. Non-life revenues increased by 0.7% to €21.4bn as the 3.9% growth in individual lines (largely driven by a 3.4% average price increase), was partly offset by a 3.8% decrease in commercial lines, said the Paris-based group. In commercial business an average price increase of 2% was ‘more than compensated’ by lower volumes from more selective underwriting and by reduced sums insured. Overall, the average price increase was 2.8%, said the group. Commercial motor revenues (8% of total P&C revenues) were described as stable by AXA as increases, notably in the UK and Ireland (+7%), Mexico (+4%) and Canada (+7%) were offset by negative contributions mostly from Spain (-22%). Commercial non-motor revenues (30% of total non-life revenues) were down 5%, said AXA. This was driven by the UK which reported a 13% reduction that followed AXA’s exit from certain property accounts in what it described as ‘a very competitive environment’. Belgium also reported a big drop by 8% as a consequence of ‘selective underwriting’ in the workers compensation market and also Switzerland (-3%) as a result of lower volumes mainly in the competitive health market, said AXA. XL Group reported a net profit for the third quarter of $77.5m against a loss of $11.4m last year on the back of gross premiums written of $1.53bn against $1.58bn for the third quarter 2009. For the nine months XL reported a profit of $397.4m compared with $246.9m last year on the back of gross premiums of $4.95bn so far this year against $4.96bn last year at this stage. The third quarter combined ratio was 94.9% against 93.2% last year and for the nine months the group has managed 95.9% against 92.8%. The combined ratio included 6.5% of favourable prior year development. The current accident year combined ratio for the non-life operations of 101.4% in the quarter included $66.2m of natural catastrophe losses, net of reinstatement premiums. The underlying combined ratio which excludes prior year development and natural catastrophes was 96.2%, virtually unchanged from the prior year, stated XL. Chief Executive Officer Mike McGavick said: "We have delivered another quarter of solid operating results in a market that continues to be challenging. This demonstrates our underwriting discipline in a challenging market. However, despite this solid underwriting discipline, we continue to feel the impact that the prolonged soft market has on earnings." XL’s recovery from its tricky situation three years ago as the credit crisis hit it harder than most was reflected in the net realised losses on investments for this latest quarter, which totalled $68.8m pre-tax compared with $325.5m last year. The group’s annualised return on ordinary shareholders' equity, based on operating income, was 7.2% for the quarter compared to 16.0% in the prior year quarter. But this sharp drop was primarily caused by an increase in total shareholders' equity of $1.7bn, or 18.5%, since September 30, 2009. Total shareholders' equity was $10.9bn at September 30, 2010, an increase of 3% in the quarter and 15% since the end of 2009. XL’s ruder state of health is reflected in its ongoing share buyback strategy. Share buybacks of $268.7m in the latest quarter were accretive to book value per ordinary share by $0.41, said the group. Since September 30 this year the company has bought an additional 4.9 million ordinary shares. In total, 18.8 million shares were bought for a total of $375.4m. The company said that its ‘current capital strength and commitment to capital management is further demonstrated’ by a further $1bn share buyback programme approved by the board at its last meeting. ACE reported net profit for the quarter of $675m compared with $494m, an increase of 37%. For the nine months it reported $2.1bn net profit against $1.6bn, up 32%. Net written premiums were up 4% over the third quarter of last year with US insurance premiums up 5%, worldwide premiums flat and reinsurance up 32%. The results benefited from positive prior year developments of $201m set off against total catastrophe losses of $97m. The positive prior year development figure at this stage last year was $203m. The combined ratio for the quarter was 88.4% against 88.1% last year and the group made an underwriting profit of $352m against $359m last year in non-life business. Evan Greenberg, Chairman and Chief Executive Officer of ACE Limited, said: “ACE had a very strong third quarter with good earnings contributions from all of our principal businesses. Our book value per share grew 7% in the quarter and is up 15% for the year. For the quarter, after-tax operating income was $688m while our P&C combined ratio was 88.4%. Our annualised operating ROE was over 13% for the quarter and nine months. Based on our strong results for nine months and positive outlook for the fourth quarter, we are raising our full-year 2010 operating earnings guidance from $6.25 to $6.75 per share to $7.20 to $7.40 per share. Spanish insurance group MAPFRE reported a net profit of €704.5m for the first nine months of this year. This was down 5.2% on last year because of the negative results of Banco de Servicios Financieros Caja Madrid-MAPFRE and because the ‘extraordinary results’ achieved last year by the group’s parent holding company could not be repeated, the Madrid-based group stated. The net profit of the insurance business rose by 8.3% and revenues were up 9.2% to €15.7bn. Direct insurance and accepted reinsurance premiums reached €12.8bn, an increase of 8.2%. The group’s equity topped €1bn. In Spain, total premiums from direct insurance and accepted reinsurance rose 2.2% to €5.7bn, an increase of 2.2%. This compared with an overall market fall of 5.3% as the Spanish economy continued to struggle, said MAPFRE. Premiums from commercial insurance, including the Global Risks business that focuses on large corporate business, reached €1.3bn, 2.4% higher than in 2009. The international business, which represents nearly 60% of the group’s total premiums, rose by 16% to reach just over €8bn. Premiums at MAPFRE AMÉRICA exceeded €3.75bn, a 19.3% rise compared with the first nine months of 2009, with strong growth reported in Brazil, Colombia and Mexico. MAPFRE GLOBAL RISKS increased premiums by 5.9% to €729.2m. The company said that this reflected the strong growth of the fire and property damage lines. Accepted premiums at MAPFRE RE exceeded €1.83bn, an increase of 17.8%. MAPFRE’s board also announced that it had approved a new management and operating structure for the group, effective as from 1 January, 2011. Under this restructure the current operating units will be organised in three main divisions: - DIRECT INSURANCE SPAIN: (Familiar, Vida and Empresas) - INTERNATIONAL DIRECT INSURANCE: (América and Internacional) - GLOBAL BUSINESSES: (Mapfre RE, Asistencia and Global Risks) Each of these divisions will have its own executive board chaired by its executive officer. The current corporate areas, which will have a global mandate over the whole group, will be coordinated by an executive board. RSA last week reported that its net written premiums of £5.5bn represented an increase of 10% over the same quarter last year and that it expects to deliver a combined ratio of around 95% this year. International net written premiums were up 8% to £2.7bn. UK net written premiums of £2.2m were up 10% while emerging markets net written premiums of £683m were up 19%. “As in the first half of the year, trading conditions remain challenging including further adverse weather in Canada and Scandinavia. We continue to benefit from our strong and diversified portfolio, our focus on underwriting discipline and our prudent reinsurance and reserving policies. In Chile, the estimated net loss for the earthquake in February is unchanged at around £30m,” stated RSA. For the full year, the UK-based group said that it expects UK net written premium growth to be close to the nine month level and international business to deliver ‘mid-single digit’ growth. RSA said that the UK remains competitive and that its strategy of pushing rates, targeting profitable growth and selective capacity withdrawal where it cannot achieve target returns is unchanged. “In Commercial lines, premiums of £1,257m were up by 10% on last year. Specialty lines again performed well with Risk Solutions up by 12% in the UK and 11% in Europe and Marine up by 13%. We continued to see a return to growth in Commercial Motor, up by 22%, driven by rating action and the phasing of renewals. We have also continued to take action to place into run-off and exit those schemes where we cannot meet our target returns,” said the group. Emerging markets are expected to return to ‘double digit’ growth in 2011 and come close to achieving this in 2010. “As it stands today, we continue to expect to deliver a combined operating ratio for the full year of around 95%,” said the group. Andy Haste, Group CEO of RSA, commented: “In what is a challenging year for the industry, we have built good top line momentum and have again driven the business forward delivering strong premium growth in the UK, international and emerging markets. We continue to supplement organic growth with targeted acquisitions and have signed a further 10 deals in 2010, including GCAN in Canada and 123 Money in Ireland. We remain excited about the group’s prospects and confident of delivering sustainable profitable performance.” As at 30 September RSA’s shareholders’ funds, excluding the pension fund deficit, were £3.9bn (111p per share) compared with £3.7bn (104p per share) at 30 June. This was driven by retained profits, fair value gains and positive foreign exchange, said the group. Total shareholders’ funds, including the pension deficit, were £3,7bn (103p per share), compared with £3.4bn at 30 June (96p per share). At 30 September, the IGD surplus, the measure of surplus defined by the Financial Services Authority, increased slightly to £1.7bn. This represents coverage of 2.3 times the requirement, said RSA. The economic capital surplus fell to £1.4bn.

Industrial insurers post healthy numbers to support continued stable market

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