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OPERATING AND FINANCIAL REVIEW / THE COMPANY / DELIVERING VALUE /
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| RISK CONTROL |
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To provide ready access for brokers and clients,
we empower our skilled underwriters
to accept risk within a well developed control
framework. Some of our key underwriting
controls are highlighted below.
A line guide is in place to control the maximum
exposure per risk written. Line limits vary by
class, taking account of potential accumulation
and clashes between classes, as well as
according to the experience of each underwriter.
Rarely will underwriters use the maximum lines;
our preference is to attain a broad spread of
risks with relatively low lines as a percentage of
overall income. With the size and diversity of
Syndicate 2001, we believe that our risk profile
is lower than many of our peers.
Some of our larger gross line limits and average
lines written for 2004 are shown in the table
below. High gross exposures are protected by
reinsurance.
LARGER GROSS LINE LIMITS IN 2004
Source: Amlin
|
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| BUSINESS CLASS |
NORMAL MAXIMUM GROSS
LINE $m |
|
AVERAGE GROSS LINE
WRITTEN $m |
|
| Airline |
125 |
|
60.0 |
|
| Airport liability |
115 |
|
40.3 |
|
| Catastrophe reinsurance* |
75 |
|
5.6 |
|
| Energy |
35 |
|
4.0 |
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| Marine hull |
15 |
|
1.3 |
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| Marine liability |
85 |
|
4.5 |
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| Large direct and facultative property* |
40 |
|
10.4 |
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| Property per risk reinsurance* |
30 |
|
3.0 |
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| Specie |
55 |
|
9.6 |
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*limits and average lines are on per programme basis
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Limits also exist to control aggregate exposures
in areas prone to catastrophe risk and potential
disaster scenarios are regularly modelled and
reviewed to ensure that Amlin remains within
specified event limits. The industry’s ability to
assess potential catastrophe damage has
increased significantly in recent years as more
data has become available and modelling
techniques have become more sophisticated.
In 2004, Amlin upgraded its modelling
software and increased its dedicated modelling
team to enhance its abilities in this area.
Additionally, underwriting risk is subjected to
four tiers of review:
- Each risk written is subjected to a peer
review by another member of the underwriting
team or, in the case of motor, compared to a
modelled rate. This is designed to protect
against under-pricing of risk and to maintain
the quality of our risk portfolio;
- Detailed class or portfolio reviews are carried
out by underwriting management to assess
performance of classes and to amend
underwriting policy as appropriate;
- Our Business Intelligence and Monitoring
team, which is independent of underwriting
management, perform detailed quarterly
performance reviews. In-depth investigation
of areas performing below expectation is
carried out so that corrective action can be
taken where appropriate; and
- Expert underwriting reviews are carried out by
external consultants to get an independent
view of our pricing and portfolio management.
In 2004 aviation products liability insurance
was identified as a class requiring corrective
action. A plan was agreed with both the
Divisional and Class underwriters to address
this which involved educating brokers of the
need for change and then taking a robust
position on renewals. Unless we could carry
meaningful price increases we were prepared
to forego income. In the event we carried an
average rate increase of 19% in this class and
renewed over 85% of prior year policies in this
class, more than we had expected.
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| REINSURANCE |
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Reinsurance is purchased to manage individual
large risk exposures or catastrophe accumulation
and it is a crucial part of controlling volatility
of performance. However, we are clear that it
is not an antidote for poor underwriting or
inadequate pricing and all the Group’s
underwriters are aware of the core philosophy
that a profit should be able to be made gross
of reinsurance.
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| 2004 UNDERWRITING STRATEGY |
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Following the above philosophy, our aim in
2004 was to renew as much of our portfolio as
possible while doing our best to hold on to
margin recognising that competition was likely
to erode our pricing power. We would increase
selectivity over new business and were reluctant
to follow rates down, being prepared to shed
business if rate reductions demanded were too
severe. In pursuing this general approach, we
managed to contain rate reductions on renewals
to only 4% across the Group and were
successful in renewing over 79% of our
2003 business. We also added £159 million
of new business.
| |
2004
renewal
premiums
written
£m |
% of
2003
written
premium |
Renewal
rate
change
(%) |
2004 new
business
premiums
written
£m |
|
| Non-marine |
341.5 |
81 |
-5.7 |
78 |
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| Marine |
93.8 |
73 |
0.0 |
34 |
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| Aviation |
57.7 |
75 |
-0.1 |
19 |
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| UK Commercial |
127.4 |
82 |
-0.5 |
28 |
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Note: Premiums are net of brokerage
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