* Company to reinsure more of its own risk - CEO
* Key insurance units to offset lower catastrophe
* Full-year 2013 profit rises 23 pct
* Shares rise more than 6 pct
By Richa Naidu
March 3 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
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,"
"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
"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
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.