UPDATE 1-Amlin turns inward to counter lower catastrophe rates

Mon Mar 3, 2014 10:24am EST

* Company to reinsure more of its own risk - CEO

* Key insurance units to offset lower catastrophe reinsurance rates

* Full-year 2013 profit rises 23 pct

* Shares rise more than 6 pct

By Richa Naidu

March 3 (Reuters) - Amlin Plc plans to counter a drop in catastrophe reinsurance rates this year by holding more of its own risk rather than reinsuring through others, the company's chief executive said.

Shares in the FTSE-250 insurer and reinsurer rose 6.3 percent on the London Stock Exchange on Monday, after Amlin also reported a 23 percent rise in full-year profit.

The absence of major hurricanes in the United States last year has led to a fall in catastrophe reinsurance rates, which has been exacerbated by the growing popularity of "catastrophe bonds" sold by insurers to share risk for natural disasters.

Amlin, the largest listed British underwriter on the Lloyd's of London insurance market, said its average catastrophe renewal rates decreased 8.4 percent in January.

"We expect that catastrophe pricing will come under further pressure for the remainder of 2014," RBC Europe analyst Kamran Hossain wrote in a note. "Amlin continues to be most exposed to this pressure with around 20 percent of the (Amlin) book in catastrophe reinsurance."

To counter this trend, Amlin said it would cut costs by reinsuring a chunk of its own risk rather than buying reinsurance from third parties.

"The net result of this is a material saving in outward spend and also a material improvement in expected profitability for 2014," Chief Executive Charles Philipps said on a post-earnings conference call.

Higher rates across some of its main insurance classes would also help Amlin to offset downward pressure on catastrophe reinsurance rates this year, he said.

In addition, Amlin will take some of its catastrophe reinsurance off the Lloyd's of London market and write it internally, pocketing the potential profit from this business instead of sharing it with other Lloyd's insurers.

About 80 competing insurance and reinsurance syndicates share risks on the Lloyd's of London insurance market, which started out 325 years ago as a gathering of shipping merchants in a London coffee house.

On Monday, Amlin reported an investment return of 3.6 percent on average invested assets for the year ended Dec. 31, below last year's 4.1 percent but still ahead of rivals Lancashire, Hiscox and Beazley.

Philipps said such returns might not be repeated in 2014.

"On investments, we do not expect a repeat of the return seen overall in 2013 for the current year, given that valuations of risk assets are no longer as compelling as they have been," he said.

"Additionally, upwards pressure on bond yields is expected to continue, which will depress returns."

Many European insurers have struggled to cope with the drag of low interest rates on their investment returns.

Central banks in developed countries, including Britain and the United States, have deliberately kept interest rates down since the financial crisis in the hope that cheaper money might spur economic recovery.

Philipps said Amlin did not record material losses in 2013 from unusually heavy storms in Britain from December, which inundated thousands of homes, shut down businesses and damaged transport links.

"In 2014, yes, we will have some wind and flood claims - but nothing to send us off-track," Philipps said.

Amlin said pretax profit in 2013 - a year with few major catastrophe claims - rose to 325.7 million pounds ($545.8 million).

The company said it would pay a dividend of 26 pence per share for the year ended Dec. 31, up 8.3 percent.

Its stock hit a high of 478.2 pence, before retreating to 469 pence, up 4.2 percent, at 1522 GMT.

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