The major insurers have been reporting their interim results. So what do the figures show?

Premiums

Business volumes declined for many companies during the first six months of the year.

Revenues fell 4% compared with the same period last year for AXA’s UK business; Aviva reported a 21% decline in UK general insurance net written premiums, and RSA’s UK net written premiums were down 3%.

Average UK gross written premium (GWP) of European insurers decreased by approximately 2% in the first half of 2009 compared with the first half of 2008, according to analysts.

This decline in premiums is not surprising, and can be attributed to a mix of factors, including lower demand for insurance as a result of the economic downturn, the steps taken by insurers to reduce their exposure to unprofitable business, and lower premium rates.

The economic downturn cost RSA £85m in revenues, says its UK chief. Aviva attributes its notably large decline in premiums primarily to its exiting of poor performing business.

Yet some insurers have bucked this trend. Brit, for instance, increased GWP by 38% in the UK, which it attributes to its “focused distribution strategy”. Allianz UK reported a 2.9% jump in GWP.

Claims

So far, the recession appears to have had a limited impact on claims. What appears to be emerging is a trend towards a more normal claims environment, in contrast to an abnormally benign period that has been evident in recent years.

This transition in the claims environment has resulted in loss ratios generally declining significantly, not just in the UK but across Europe.

Several groups (including AXA and Allianz) reported increases in frequency and severity of loss events when looking at the whole of the group.

Analysis by Citigroup found that the average UK loss ratio for European insurers deteriorated by four percentage points, from 62.8% to 66.8%.

AXA’s UK general insurance loss ratio increased to 68.9% in the first half of the year from 62.5% last year; RSA’s rose slightly from 62.9% to 63.2% and Aviva’s increased to 65.8% from 60.2% according to Citigroup. Of the major European insurance groups, only Zurich improved its UK loss ratio, cutting it slightly to 69.8% from 70.0%.

Reserves

A comparison of the claims incurred (or booked) by insurers in the first half of the year and the claims paid during the period suggests that reserves are being paid down more quickly than in the past.

For a number of insurers, the claims paid in the period increased more than claims incurred; for instance, Allianz’s current-year claims paid increased by 10.6% but the claims incurred (booked) only increased by 1.0%, according to Citigroup.

Citigroup suggests that one reason is that some insurers are now reserving very thinly compared to previous years. The implication of this is that insurers will not be able to rely on reserve releases to boost future earnings – something that has happened in recent years.

Indeed, it notes that reserve release contribution to first-half results has been lower than in the preceding half year. Insurers may only have a reserve cushion of another 18 months in order to bolster results.

michael.faulkner@instimes.co.uk

Key points

  • Average UK gross written premium of European insurers declined by approximately 2% in the first half of 2009
  • The recession appears to have had a limited impact on claims
  • Average UK loss ratio for European insurers deteriorated by four percentage points, from 62.8% to 66.8%
  • Indications suggest that insurers are now reserving very thinly compared with previous years

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