strong results from our Property, Energy
and Aviation Divisions.
It was a mixed year for insurance, as the gains from a quiet hurricane season and generally good underwriting conditions were countered by the impact of global turmoil and recession-related claims. Against this background, our underwriting performed well, recording a profit of £45.8m before the impact of foreign exchange on non-monetary items, with strong results from our Property, Energy and Aviation Divisions.
Gross written premiums, excluding reinsurance to close (RITC) premiums and consolidation adjustments, increased by 15.3% to £795.6m (2008 £689.9m), as we focused growth in those areas where rating levels were strongest. The blended rate increase for Syndicate 1084 reached 6%. Net earned premiums increased by 24.9% to £672.6m in 2009 (2008 £538.4m).
The Group’s combined ratio improved to 93% (2008 94%). During 2009, the Group released net reserves of £31.8m relating to prior periods (2008 £74.1m), which reduced the combined ratio by 5% (2008 13%). The expense ratio decreased to 31% (2008 32%), benefiting from a foreign exchange gain of £1.8m (2008 £8.4m).
Events and outlook
After heavy insured losses in 2008, there was a significant reduction in the magnitude and frequency of both man-made and natural catastrophe insured losses in 2009. The global bill for natural catastrophe insured losses was upwards of US$20bn, headed by Windstorm Klaus, which caused damage of some US$3.5bn in France and Spain in January 2009. This compares to an insured loss of approximately US$20bn from Hurricane Katrina alone in 2005. The bill for man-made insured losses was approximately US$4bn.
The property, energy and marine markets benefited from the calmest hurricane season in 12 years. However, despite a respite for Gulf of Mexico accounts, the offshore market as a whole no more than broke even after the November fire at the West Atlas Rig in the Timor Sea, which may result in claims in excess of US$700m.
Other major global property losses were also light. The early forecasts for 2010 predict a return to more typical levels of Atlantic hurricane activity, with an above average number of hurricanes expected to reach the US coastline.
The aviation market also suffered heavy losses of up to US$2bn in 2009, the worst since 2001. The tragic loss of an Air France A330 over the Atlantic in June accounted for half of the total annual loss for the industry. There were also other major losses including the New York State Continental Airlines/Colgan loss in February and the Turkish Airlines crash in the Netherlands in the same month. The Group’s Aviation Division focuses away from both major airlines and US-related liability exposures, avoiding significant exposure to these losses.
It was a challenging year for political risk and trade credit underwriting as heavy losses were experienced following the near collapse of Ukraine’s banking sector and similar issues surfacing in Kazakhstan.
Following the generally positive market results of 2009, there is pressure on terms and conditions in a number of classes, albeit from rates that are predominantly healthy and at an all-time high in some cases.
UK motor rates will harden significantly in order to turn this sector to profitability. It has proved to be a difficult year for motor insurers as the impact of claims farming and recession-related claims have pushed losses beyond original estimates. In 2009, we began taking the appropriate action to address this, including major rate increases yielding in excess of 20% for some of our private car products.
Given the healthy underwriting results achieved across our non-motor divisions in 2009, increasing premium volumes for 2010 is reasonable, with approximately £45m of the overall increase of £73m in Syndicate 1084’s capacity stemming from non-motor business. Despite a forecast flattening of rates in 2010, these areas continue to offer excellent profit potential.
