Performance
Outlook for 2009
Amlin’s ability to benefit in 2009
Our view of likely pricing trends is now very different. While it is difficult to be precise about timing, we now expect improving margins across most classes of business and we expect that this improvement will accelerate through the year and into 2010.
The reinsurance market is the easiest area to predict. The reduction in retrocessional capacity means that the ability to transfer risk for peak catastrophe zones, such as US States on the Eastern seaboard, is limited. Where available this cover is also considerably more expensive. Therefore, to provide better risk/reward balance, rates should rise in peak zones.
For the 1 January 2009 renewals, a major renewal season, US catastrophe pricing was up on average by 9.6%. International catastrophe reinsurance was less strong with average rate increases of 3.1% but this is a sharp reversal of our previous expectation of double digit rate falls. As the impact of lower retrocessional capacity is better appreciated we expect that the pressure for improvement in rates will increase. This, combined with a concentration of US windstorm renewals in the middle of the year, supports our view that the full year 2009 average rate rise will improve on 1 January levels.
Similarly we expect a strong reaction for catastrophe exposed insurance, such as energy and large commercial property. Energy rates for Gulf of Mexico risks should return to levels seen in 2006, post Katrina. Large commercial property rates have already stabalised, compared to reductions of up to 20% in 2008 and we expect rises in the latter half of 2009.
The impact on non catastrophe exposed classes, such as US casualty, will be slower. There was already little margin evident in much of the US insurance market and as companies appreciate the full impact of the events of last year we expect that rates will strengthen gradually through the year.
In lines where rates were inadequate across the sector, such as airline and UK commercial motor, we are already seeing improvements. In December 2008, the major renewal season for airline risk, rates were on average up by 4.3%. Expectations for 2009 are higher, and resolve will be strengthened by a spate of losses including the recent disaster in Buffalo, New York, which is estimated to have an insured cost in the region of US$250 million.
The UK commercial motor account is also showing sustained rate rises, with rate increases for the four months to the end of January 2009 at 7.9%, 4.2%, 10.2% and 7.7% respectively.
Amlin is in a strong position to take advantage of these improved conditions. Our portfolios are currently weighted towards reinsurance, energy and property insurance risks. Our underwriters have performed well, with most areas continuing to deliver good margins. Consequently they have the confidence, available capital and management support to expand.
Importantly we entered 2008 with surplus capital and did not suffer the reductions of capital during the year which were suffered by many in the industry. We believe that even after the boost our reported income will get from movements in exchange rates, we have sufficient capital to grow organically our premium income by over £500 million. The more we can grow our non catastrophe classes the more efficient our capital usage will be and the more we can expand.
Top