Record earnings at Amlin startle analysts

Amlin surprised analysts this month with a 29% leap in pre-tax profit to £177.1m for the first half of 2009, from the £137.3m it reported in the same period last year.

“It was record earnings for us and, if you strip out the impact of foreign exchange on net non-monetary liabilities, profits were up 70.2% at £234.9m,” chief executive Charles Philipps said.

The combined ratio deteriorated to 73% from the 67% Amlin announced last year, and underwriting contribution dropped to £135.3m from last year’s £148.7m. Despite this, the specialist insurance and reinsurance business enjoyed a 2.77% rise in its share price after the announcement of its results.

Noble insurance analyst Rakshit Ranjan said the results were “a huge surprise on earnings – 30% ahead of our forecast”. He said it was due to underwriting margins of 35% and the group being well supported by reserve releases.

Even if Amlin had no access to reserves, Ranjan believed it would still have generated an excess of 20% margin.

Joy Ferneyhough, an analyst for Execution, said the catastrophe side of the business had pulled in the good results. “It’s the one area where rates remain the hardest and margins remain the most attractive. I am most comfortable with that part of the business.”

Returns on equity also leapt 27.4%, after a 20.6% rise in 2008, above the long-term target of 15%. Investment return also improved to 1.6%, up from 0.7%. Meanwhile, earnings per share jumped 54.4% to 35.2p from 22.8p last year.

Philipps said the integration of Fortis Corporate Insurance, renamed Amlin Corporate Insurance (ACI), which the group acquired on 22 July, was “proceeding well”.

Ferneyhough said that ACI could have a slightly negative impact on the business. “They have great catastrophe business but, in the second half of the year and into next year, those results will be slightly dilutive by this acquisition, which takes them away from the that business.”

Philipps would not rule out further acquisitions in 2010, following the successful integration of ACI.

“That will be a six- to nine-month process, during which we will concentrate on making it a success rather than be diverted by an acquisition. We may turn our minds to it in the middle of next year.”

Ferneyhough added: “They could look at the US; that’s certainly an area they have talked about before. Or perhaps some small deal in Europe to get some synergies with ACI because of the new European platform that they have.”