Strong Q1 investment return at Amlin

Strong Q1 investment return at Amlin

UK-based, London-listed insurer and reinsurer Amlin has reported "a good start to 2015 with limited loss activity" in its Q1 interim management statement.

Gross written premiums (GWP) for the first quarter were £1.26bn, down from £1.28bn in the same period last year. There was a  1.4% decline at constant rates of exchange. The benefit gained in floating rates of exchange from US dollar strength was counterbalanced by euro weakness. Amlin has a significant mainland Europe commercial operation in Belgium and the Netherlands.

This slightly skewed Amlin's sector results, with reinsurance income (dollar-predominant) benefiting, while Marine & Aviation (euro-dominant) shrank.

GWP in reinsurance was £603.6m, up from £599.8m in Q1 2014, with renewal rates down 6.3% year on year.

Marine & Aviation GWP was £191.3m, down from £196.6m, although, with renewal rates down by 4.1% year on year and with the euro weakening, this represented an increase in actual business.

Property & Casualty GWP fell to £465.3m, from £480.3m, although there was good news on the rates front, with prices up an average of 0.6%.

Average renewal rates were down by 3.5% year on year.


In reinsurance, Amlin said that competition remained challenging. US catastrophe renewal rates were down 6.5% year on year on average, while in international catastrophe the corresponding reduction was 10.5%. Non-cat renewal classes, which now make up 20% of Amlin's annual premiums, saw less pressure, although rates were still off by an average of 4.8%. Amlin noted that the income included £31.2m related to multi-year deals.

Property & Casualty

US P&C rates were down by an average of 2.8%. UK commercial saw new business amounting to £38.1m. UK fleet motor saw continued rate improvement, averaging a 6.3% rise in Q1.

Marine & Aviation

Renewal rates in Marine & Aviation were under pressure in most classes, but energy saw the most pressure, with rates off 13.3%. Amlin said that falling oil prices had affected construction and drilling capacity.

Outwards Reinsurance/Retrocession

Outwards reinsurance of £203.1m, representing £16.1% of GWP, was down from £211.4m (16.5%), a saving achieved partially through the purchase of one group-wide retrocessional programme, as well as more attractive terms.

Amlin Re obtained cat bond protection for four years from January 1 via the Tramline II securitisation. The cost of £52.7m has been recognised in full in Q1, but will be earned over the four years that the securitisation is in effect.

No Major Losses

There were no major catastrophe losses in the quarter, as was the case in Q1 2014. Large losses were just £6.6m, down from £7.5m in the same quarter last year.

Claims reserves continued ion a positive vein, with £29.2m of reserve releases in Q1, up from £17.4m in the corresponding quarter last year. The releases originated mainly from the reinsurance and P&C sectors.

Strong Investment Return

The investment return for Q1 was 1.7%, ahead of expectations and helped by the 5.7% gain on equities, which made up 17% of Amlin's asset allocation during the quarter. This has now been shaved to 16%, with the proceeds invested mainly in zero duration bonds. That duration-neutral shift left the average duration of the portfolio at just 0.4 years.

Analyst view

Commenting on the results, Shore Capital's equity analyst Eamonn Flanagan, said:

"Like its peers, the group highlighted on-going rating pressure in certain lines, such as property catastrophe reinsurance, both US and International, although it did stress that the pressure on other lines was less severe, such as in UK fleet. 

"Trading at a c67% premium to our 2015F NTAV of 285p reducing to c61% for 2016F (vs 297p), with a c5.9% forward yield (vs 28.3p), we believe the shares still offer excellent value.

"Amlin offers, in our view, an excellent mix of primary, reinsurance and retro exposure together an quality play in the alternative capital space, via Leadenhall. The underlying income attractions are considerable, with these complemented by the declaration of a special dividend in 2014. We reiterate our BUY recommendation on the stock."

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