B. Property and casualty risks

B.i Property insurance risks

Property classes

	2008 Gross premium £m	Current maximum line size £m	2008 Average line size £m
Direct and facultative property	68	21	2.5
Binding authorities	27	2	0.3

Property cover is provided to large commercial enterprises with high value locations and/or many locations and also for small commercial property. The perils covered include fire, flood, wind and earthquake damage. Business interruption cover is also provided for loss of earnings sustained due to the perils and properties covered but may also be extended to connected enterprises. Terrorism cover is given on a limited basis particularly where required by local regulation, but nuclear and bio-chemical coverage is excluded in most territories.

Direct and facultative property insurance is written for the full value of the risk, on a primary or excess of loss basis, through individual placements, or by way of delegated underwriting facilities given to coverholders (‘binding authorities’). Binding authority arrangements delegate the day to day underwriting to underwriting agents working on our behalf. For these contracts, we are reliant on a coverholder exercising underwriting judgement on our behalf. Coverholders have to have local regulatory approval, be Lloyd’s registered and also approved by the Amlin Binding Authority Committee. For all binding authorities facilities we receive a monthly or quarterly bordereau which is checked by our underwriting staff. We control the underwriting by setting clear authority levels for coverholders stipulated within the binding authority agreement, regularly monitoring performance and periodically carrying out underwriting visits and or commissioning third party audits. The coverholder is incentivised to produce an underwriting profit through the payments of profit commission. However, with the day to day underwriting not controlled by Amlin, there is a risk that coverholder underwriting or claim decisions are made which would not have been made by Amlin underwriters or claims staff. The maximum value insured under binding authorities is currently limited to $4 million at any one location.

The property portfolio is also exposed to an above average frequency of individual fire, explosion or weather related claims. The premium charged for the coverage given may not be sufficient to cover all claims made in any year, particularly in a year in which there is an abnormal frequency of claims. This account is mainly situated in the USA and is therefore exposed to large catastrophe events such as California earthquake and hurricane losses.

The geographical spread of property classes is shown below:

B.ii US casualty risks

The US casualty portfolio of business provides insurance and reinsurance cover to individuals, or companies, in order to indemnify them against legal liability arising from their activities and actions or for incidents occurring on their property. The account is currently written to a maximum liability of $6 million on any one claim but average lines are $0.6 million on any one claim. 2008 gross premium was £25 million.

The portfolio is made up of specialist general casualty, professional indemnity, medical malpractice and errors and omissions cover. Small amounts of directors’ and officers’ liability and auto liability are also written. The class is mostly written on a claims notified basis (responding to all claims made during a defined period) except for small amounts of general liability business which may be written on a losses occurring basis (the policy responds to losses which occur during the period even if reported after the policy has expired).

Claims from this class emanate from professional error, negligence or an accident which causes injury, damage or financial loss. The account is vulnerable to a high frequency of claims, but not individual large losses as the cost to Amlin of any individual claim is small. Claims frequency may be impacted by a generic claim type which impacts many individuals and (re)insurance policies such as poor housing design or bad medical practice. The size of many individual claims is subject to the decisions arising from the US court system which can be higher than anticipated. There is also the potential for US courts to impose a ‘bad faith’ judgement on insurers if it is deemed that the insurer has acted improperly in trying to avoid contractual obligations. Such awards can, in exceptional circumstances, be much higher than the value of the insurance claim.

B.iii Accident and health, credit, auto and special risks

The Group also writes other property and casualty classes which contribute diversified exposure to the portfolio. The main classes with the maximum sum insured lines are shown below:

Property and casualty other classes

	2008 Gross premium £m	Current maximum line size £m	2008 Average line size £m
Accident & health	24	3	1.2
Credit insurance	11	15	15.0
Auto	24	4	0.3

Notes:

1. Limits are set in US dollars converted to sterling at a rate of £1=US$1.5 and therefore currency rate of exchange changes may increase or reduce the sterling limits.
2. Maximum line size is after business written and ceded by specific proportional treaties to Amlin Bermuda Ltd.
3. Premium are stated gross of acquisition costs.

The accident and health class is written through medical expense schemes in the USA and direct personal accident cover, or personal accident reinsurance, worldwide. Medical expense cover is subject to a high frequency of claim and significant medical cost inflation. Personal accident insurance and reinsurance could be impacted by a single or series of accidents to high value insured individuals or from a multiple death and injury event such as an air crash or natural catastrophe.

Credit insurance was written for UK and Irish companies only with coverage provided to protect against insolvency of debtors in the normal course of trading. This unit ceased underwriting in 2008. The principal risk is from a large corporate collapse which may impact many of our assureds or a serious economic downturn as currently experienced which impacts many sectors and companies.

The auto class covers property damage only (fire, theft and collision) in the USA and property damage and third party motor liability combined cover in other international territories. This class could be impacted by unexpected claim frequency, a multi vehicle event such as a severe flood and also large bodily injury award claims emanating from an accident.

The geographical spread of Property and casualty other classes is shown below: