Could Norwich Union’s influence be about to push up rates?
Norwich Union is justly pleased with its half year results. The annus horribilis caused by the 2007 summer floods is now just a memory, and the UK’s largest insurer is back on track with a 15% rise in profits to £326m.
For NU, soon to be rebranded Aviva, this is simply the beginning. Under its ‘One Aviva, twice the value’ banner, the company has plans to deliver £200m of cost savings in 2008 alone. Ambitiously, it has declared its intent to achieve a market leading expense ratio of 11%.
The mantra now is “profitable growth” and NU, unlike many of its rivals, appears to be practicing what it preaches. In general insurance in the UK, net written premiums have fallen 4% to £2,589m for the first six months of 2008, which the insurer attributes to its strong ratings stance. In personal motor, NU has achieved rate increases of 5%, with 10% rises in household policies. In the fiercer commercial lines market, NU has achieved a small annualized increase of 2%, at the expense of some volume.
NU chief executive Igal Mayer told Insurance Times: “Most if not all of the market is not pricing to an adequate rating level today and that’s not sustainable. We are trying to inch rates up right now and if that means we will have to sacrifice some volume to do that, then that’s what we will certainly do.”
This is tough talk from Mr Mayer, but today’s figures show that NU can make money while pushing up rates. Moreover, they show that it really is willing to sacrifice volume, and that this message is filtering through to the underwriters on the ground. This is particularly impressive given the wider economic climate. To quote Mayer: “Given the general economy, we would describe our results as a very solid performance. I said jokingly to someone today – solid is the new black.”
NU has also been able to leverage its global scale to weather a small storm in the UK. In Asia, for example, it is seeing rapid growth in life insurance, helping it to play a long term game here in the UK.
A 2% rate increase across commercial lines is a fairly small step, but where Norwich Union leads, other insurers are bound to follow.
