Review
The business – an introduction
Our underwriting approach
The core aim of Amlin underwriters is to produce a gross underwriting profit through the insurance cycle rather than to maintain market share within the relevant class. Reinsurance is purchased to alleviate the impact of severe and infrequent loss experience, not in order to support inadequate original pricing. A consequence of this approach is that as underwriting margins grow Amlin will look to increase market share but, equally, as margins fall market share will also be reduced. Underwriting selection is critical. The reward for selectivity should also be reflected in the cost of reinsurance as reinsurers are willing to provide coverage on more favourable terms, underpinned by the knowledge that the underwriters are exercising underwriting discipline.
We believe that this approach to underwriting is beneficial to our clients through the cycle. The most frequent cause of insurance company failures, particularly for specialty insurance and reinsurance, is systematic underpricing.
Our approach provides greater assurance of continuity for our clients.
The diversity of the business as a whole helps this approach to portfolio management, as the insurance pricing cycles for each class of business underwritten are not synchronised. For example, after severe hurricane losses were incurred by the reinsurance market in 2005, reinsurance pricing in 2006 strengthened, whereas many other classes, which were not exposed to natural catastrophes, experienced continued weakening in price. In these circumstances we were able to flex our business mix to take account of market conditions and consequently, utilise our capital more efficiently. The main constraint on our ability to expand, other than capital, is our risk appetite.
The management of our underwriting exposures within our risk appetite is a key area of our expertise and is integral to our underwriting strategy. Our approach to setting risk appetite and managing underwriting exposures is set out in the Risk Management section of this Review.
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