Amlin blames low interest rates for falling profitability in 2014

2nd Mar 2015 10:49

Amlin, the British insurer and reinsurer reported a drop in full-year pre-tax profit by 21% as the low interest rates environment together with a drop in investment return dented profitability."Profit was lower through a combination of reduced reserve releases after high levels in 2013, and a fall in investment return reflecting weak economic growth in the world economy and low interest rates," said Amlin.The group, one of the largest listed UK underwriters of property, casualty, marine and aviation insurance, reported profit before tax of £258.7m in 2014, down from the 2013 figure of £325.7m. It saw an investment return of £118.5m, equivalent to 2.7% on average investments versus £160.4m or 3.6% on average investments in 2013.As such, the return on equity was at 14.1% last year versus 19.8% in 2013 and the return on net tangible assets was at 16.4% against 23.2% in 2013. The company said it was disappointed in the performance of its UK business but did highlight that it moved £35.5m worth of gross written premium from the UK business to its Amlin London business."The claims ratio increased to 70% from 62%, driven by claims from winter floods of £10m which added 3%, and a higher than normal frequency of large losses on the commercial motor account, particularly the haulage sub sector. 2014 was the third worst year for large loss activity for the motor account over the last thirty years," said the group.Specialist insurers and reinsurers like Amlin have been under pressure as low interest rates hamper the premiums they can charge. As such, Amlin said it was reorganising its business into three business units to improve its global presence.Broker Numis Securities cut the rating on Amlin stock to hold from buy, noting the results contained mixed divisional performance and satisfactory underwriting margins however the group's key segments continued to generate strong underwriting margins and a good investment result."Rate softening will be a drag on future earnings but as with a number of peers Amlin is buying more reinsurance cover to reduce catastrophe exposure, which we think has positive valuation implications," said Numis.