AXA leads way as insurers reveal improved results

The UK general insurance divisions of large European insurers are reporting greatly improved full-year performances in 2011 as restructuring and re-underwriting efforts take hold.

But the numbers belie the challenges still facing the industry as it grapples with the dual challenges of rising bodily injury claims on the personal lines motor side and barely adequate rates in many commercial lines of business.

AXA UK has so far reported the biggest improvement: it swung to an underlying profit of £133m from a comparable loss of £63m in 2010.

The underlying profit excludes items such as realised and unrealised investment losses, restructuring expenses, and acquisition gains and losses. Including these, AXA UK’s 2011 profit would have been £106m.

AXA UK and Ireland general insurance revenues increased 4% to £3.8bn.

The company attributed the improvement in part to rate rises over the past two years, but also to its restructuring in 2011, which has helped strip around £20m of costs out of the UK operation by removing a layer of middle management.

“I’m really pleased with the results because every line of business achieved growth and every line of business improved its profitability,” AXA UK and Ireland group chief executive Paul Evans told Insurance Times. “In current markets, that’s a pretty good outcome.”

But AXA still has some work to do to fully restore underwriting profitability. While the combined ratio excluding the effect of prior years improved by 6.4 percentage points to a profitable 98.9% in 2011, the ration including reserve movements was 100.9%, indicating that AXA had to strengthen reserves during the year.

AXA declined to comment on the amount of the strengthening and the line of business it was for. In 2010, AXA’s combined ratio excluding reserve movements was 105.3%, while the full ratio was 103.9%, indicating the company’s underwriting result benefited from prior-year reserve releases that year.

AXA also revealed in its results that its UK motor combined ratio was still in loss-making territory at 101.7%. The company blamed continued bodily injury claims inflation, and whiplash in particular, for the motor ratio, which it said undermined the rate increases it had put through.

“There is an inference in the market that motor insurers are suddenly making profits because premiums have gone up so much,” Evans said. “I’m not sure that is going to be universally true.”

A further challenge for AXA is commercial rates that, while rising, remain too low for insurers’ liking in lines outside commercial motor.

“I don’t honestly believe that we will see a significant shift in commercial property and liability classes this year,” Evans said. But he added that AXA has not built any commercial rate rises into its plans.

Zurich UK chief executive Stephen Lewis also highlighted commercial business as a concern for 2012. Exacerbating the price challenge is the fact that reserve releases from prior years have dried up and investment returns have dwindled because of low interest rates.

“If we don’t start carrying rates that at least offsets claims inflation then all we are going to have as an industry are eroded margins that are already barely at an acceptable level,” Lewis said.

“This will be tough because capacity continues to be brought into this market, but there will be a general recognition of the need to continue to push for rate to ultimately stabilise returns for the industry.”

Unlike AXA, Zurich appears to have put its personal lines motor woes behind it after 18 months of price rises and operational changes. While declining to give a precise combined ratio for the business, Lewis said: “It is the right side of 100%.”

Zurich UK had a good 2011 overall. The company boosted operating profit by 23% to £159m, although gross written premiums fell 5% to £1.7bn largely because of underwriting actions in personal lines.