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OPERATING AND FINANCIAL REVIEW / BUSINESS CONTEXT / TRADING ENVIRONMENT
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| 2004 LOSS ACTIVITY |
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Until the arrival of the windstorm season,
catastrophe loss activity in 2004 had been
particularly benign. The largest industry event
loss was US mid-West storms in May 2004,
with an estimated US$0.8 billion cost to the
insurance industry.
An unprecedented Atlantic hurricane season,
together with a highly active typhoon season
affecting Japan, then contributed to 2004
becoming the worst ever year for insured
natural catastrophe losses, with a total
industry cost presently estimated at
around US$42 billion.
Each of hurricanes Charley, Ivan, Frances
and Jeanne are among the ten most costly
catastrophes ever to have occurred in the
United States. To put the 2004 hurricane
season into context:
FREQUENCY OF FOUR HURRICANES MAKING LANDFALL IN THE US
Source: Risk Management Solutions, Inc
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| First year since 1985 |
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| Since 1851, only 11 years with four or more hurricanes |
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| SPATIAL CONSISTENCY IN LANDFALL LOCATIONS |
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| First year with three landfalls in the same state since 1964 |
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First year of four loss–causing hurricanes in Florida
since 1837 |
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| SEVERITY |
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| First year with three category 3-5 US landfalls since 1933 |
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Only two earlier years (1909 and 1893) with three
category 3-5 US landfalls since 1851 |
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This high level of natural catastrophe was
dwarfed in terms of human tragedy by the
earthquake tsunami which devastated so many
coastal areas of the Indian Ocean. Insurance
penetration in this region is extremely low
however, with the result that insured losses
from this disaster will be limited.
As the largest reinsurer in the Lloyd’s market,
Amlin was exposed to the year’s major losses,
but the management of event limits and a
reinsurance programme designed to address
the effects of unusual frequency of perils
contained losses for Syndicate 2001 to
an overall estimated £74 million, net of
reinsurance, from those events shown in
the table below.
MAJOR CATASTROPHES IN 2004
Source: Swiss Re Sigma except for the Asian Tsunami which is based on industry estimates
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| EVENT |
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COUNTRY |
INSURED LOSS $bn |
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| Hurricane Ivan |
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US, Caribbean et al |
11.0 |
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| Hurricane Charley |
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US, Cuba et al |
7.0 |
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| Hurricane Frances |
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US, Bahamas |
5.0 |
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| Hurricane Jeanne |
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US, Haiti et al |
4.0 |
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| Typhoon Songda |
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Japan, South Korea |
2.5 |
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| Asian Tsunami |
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Indonesia, Thailand et al |
1.0 to 2.0 |
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| Typhoon Tokage |
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Japan |
0.8 |
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| Typhoon Chaba |
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Japan |
0.7 |
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| Chuetsu Earthquake |
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Japan |
0.6 |
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| RAISING INDUSTRY STANDARDS |
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Momentum towards raising standards in
commercial insurance continued in 2004
with the publication of Lloyd’s first Franchise
Business Plan and the preparation for
important changes being introduced by the
Financial Services Authority (“FSA”). The
investigation by the New York Attorney General
into brokers’ commission arrangements and
disclosure, which gathered pace in the last
quarter, is also set to have longer term benefits
in terms of greater transparency.
Lloyd’s Franchise Business Plan published in
May 2004, established an overall agenda and
set of objectives for the Lloyd’s market. This
encompasses underwriting performance
management, upgrading the sophistication
of risk management among Lloyd’s entities,
improving the management of claims across the
market and business process reform aimed at
increasing efficiency and improving client service.
Amlin is highly supportive of these initiatives in
the belief that such changes can help increase
the international reputation and attractiveness
of Lloyd’s so that a greater share of business
comes to London.
The FSA published its new capital adequacy
rules which include an “Enhanced Capital
Requirement” and “Individual Capital
Assessment” regime for determining the
minimum acceptable level of capital for each
business. Also, its Insurance Conduct of
Business rules which govern dealings with
clients, took effect on 14 January 2005.
From the same date, the introduction of the
Insurance Mediation Directive means that
insurance brokers and other intermediaries
are now regulated by the FSA.
Amlin believes that increased regulatory
attention on the industry, together with Lloyd’s
focus on business process reform, will favour
those businesses which have the ability and
scale to invest in process change.
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