Underwriting performance
Underwriting made a strong contribution to profit despite an extraordinary year of catastrophe losses. 2005 is estimated to be the costliest on record for hurricane losses with estimates of the insurance cost ranging from US$60 billion to US$80 billion. For Amlin, the 2005 storms cost US$236.7 million, net of reinsurance.
Reserve releases were again material contributing £79.7 million (2004: £49.7 million) to profit and reducing the combined ratio by 10.9%.This is a welcome contribution in a difficult trading year. It reflects our policy, but also that development of prior underwriting years has been considerably better than expected.
Importantly a consistent reserving strength has been adopted at the end of 2005 compared with the previous year. That said, there are a number of classes, most notably our UK commercial liability classes, where our actual claims experience has now provided a better guide to future development than we have had hitherto. For such classes, we have improved our view of expected performance which does generate a single year gain.
Gross premiums were up 4.6% despite a fall in renewal rates of 4% during 2005. Net premiums written increased by 5.5%. The reinsurance premium ceded to reinsurers was 17%, consistent with 2004. Net earned premium was up 6% at £827.5 million (excluding premiums associated with the reinsurance to
close).
The breakdown of the cost to Amlin of the 2005 hurricanes by storm, and broadly by class of business is provided below.
| Hurricanes |
| |
Total
cost
US$m |
Property
insurance
US$m |
Property
reinsurance
US$m |
Energy
US$m |
Other
US$m |
 |
| Katrina |
527.4 |
217.0 |
267.4 |
32 |
11.0 |
|
| Rita |
160.7 |
17.8 |
89 |
51 |
2.9 |
|
| Wilma |
172.8 |
16.5 |
155.9 |
- |
0.4 |
|
| Gross loss |
860.9 |
252.5 |
512.3 |
83 |
13.1 |
|
| Reinsurance recovery |
-619.5 |
-214.2 |
-319.6 |
-73.2 |
-12.5 |
|
| Reinstatement premiums |
241.4 |
38.3 |
192.7 |
9.8 |
0.6 |
|
| Net loss |
-4.7 |
11.9 |
-28.8 |
10.1 |
2.1 |
|
| Sub total |
236.7 |
50.2 |
163.9 |
19.9 |
2.7 |
|
|
The cost of the storm losses is greater than those experienced in 2004. Gross estimated ultimate claims were significantly larger at US$860.9 million (2004 storms: US$265.0 million) which reflects the severity of the 2005 hurricanes. This is true not only of Katrina, which is estimated to be the costliest natural disaster on record, but also Wilma, which is estimated to be the seventh costliest natural disaster on record since 1970. The resultant claims were better absorbed by the reinsurance programme purchased by the Group which is designed to deal with severity of losses. This is illustrated by the retention rate (ie the net loss to gross loss ratio) which stands at an estimated 27% for 2005 and 53% for 2004.
We estimate the potential losses from large events on a contract by contract basis rather than relying entirely on computer modelled output.
At an early stage our estimates are subject to material uncertainty as it takes several months before loss adjusters and assessors can visit every damaged property. However, by the year end they reflect formally advised claims or good indications of likely loss received from intermediaries or clients. The principal uncertainties that remain relate to final determination of the value of claims, particularly for business interruption on property and energy claims, and in a few cases, possible disputes. The reinsurance recoverable from these events is significant. However our reinsurance credit quality is generally good and as noted here collections to date have been made quickly.
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