A stream of major catastrophes this year - ranging from earthquakes in Japan and New Zealand to tornadoes in the US - have meant eye-watering losses for most insurers. Lloyd's underwriter Amlin is no exception. The effect of catastrophes forced Amlin to report a painful underwriting loss in the first of 2011, when claims were 21 per cent higher than premiums.
- Impressive dividend yield
- Premium rates hardening
- Hit hard by catastrophe losses
- Making heavy underwriting losses
- Uninspiring investment performance
- Shares expensively rated for the sector
Significantly, Amlin's half-year underwriting result looks weaker than at some of its peers. RSA, for example which, admittedly, isn't a Lloyd's player, reported a profitable 93 per cent first-half combined ratio of claims to premiums. While rival Beazley, which also suffered heavy catastrophe losses, made a modest half-year underwriting loss, with a 108 per cent combined ratio. What's more, analysts at broker Numis Securities expect Amlin to remain loss-making for a while and forecast a combined ratio of 101 per cent for all of 2011.
Indeed, Amlin's claims experience appears to have worsened since the half-year stage. For example, last month Amlin's bosses reported that their claims estimate from February's New Zealand earthquake had risen by $33m (£21m) to $338m, while they now anticipate that claims from the Japanese earthquake to reach $206m, well up on the half-year estimate of $156m. The group also suffered new catastrophe-related losses in the third quarter totalling $25m and it could face losses from last month's extensive flooding in Thailand. Management says it's still too early to provide guidance on likely losses there, but broker Espirito Santo thinks this event could be nasty enough to cost insurers between $15bn and $20bn.
AMLIN (AML) | ||||
|---|---|---|---|---|
| ORD PRICE: | 326p | MARKET VALUE: | £1.62bn | |
| TOUCH: | 326-327p | 12-MONTH HIGH: | 430p | LOW: 270p |
| DIVIDEND YIELD: | 7.1% | PE RATIO: | na | |
| NET ASSET VALUE: | 297p | COMBINED RATIO: | 121% | |
| Year to 31 Dec | Gross premiums (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2007 | 1.04 | 445 | 68.8 | 15 |
| 2008 | 1.03 | 122 | 17.1 | 17 |
| 2009 | 1.54 | 509 | 94.1 | 20 |
| 2010 | 2.17 | 259 | 45.0 | 23 |
| 2011* | 2.36 | 3 | 0.2 | 23 |
| % change | +9 | -99 | -99 | nil |
*Numis Securities estimates (EPS not comparable to prior years) Normal market size: 12,000 Matched bargain trading Beta: 0.6 | ||||
Admittedly, such costly catastrophes mean underwriters have to push up premium rates to rebuild their reserves - potentially good news for insurers' profits. Catastrophe-related business classes are beginning to see decent rate increases. Amlin, for instance, reports that premium rates for US catastrophe business have risen 5.1 per cent since April, while rates on its international account have risen 6.9 per cent in the first 10 months of 2011. Moreover, Amlin's property classes have seen premium rates rise 5.9 per cent since the half-year.
But given the scale of Amlin's losses, the profits boost from rising premiums could take longer to feed through than at some rivals. Rate increases are only coming through consistently for catastrophe-related business, yet Amlin also underwrites a significant amount of fleet motor insurance. That's written through the Amlin UK unit, which generates 11 per cent of the group's gross premiums. While Amlin reported an impressive 9.6 per cent rate increase for its fleet motor book in 2011's first half, the motor market generally isn't likely to continue making such progress. Admiral, for example - a bellwether of the motor sector - saw its premium rates rise 11 per cent in the first half, but its management says that such hefty increases probably aren't sustainable. Amlin's investment return looks weak, too - just 0.4 per cent for the nine months to end-October, compared with 1 per cent at Beazley over the same period.
