23rd Oct 2009 07:00
FOR IMMEDIATE RELEASE
23 October 2009
BRIT INSURANCE HOLDINGS PLC
INTERIM MANAGEMENT STATEMENT
Brit Insurance Holdings PLC ("Brit Insurance" or "the Group"), the international general insurance and reinsurance group, releases the following Interim Management Statement and trading update as required by the UK Listing Authority's Disclosure and Transparency rules, relating to the 42 week period from 1 January 2009 to 22 October 2009.
Summary
Gross written premium up 19.0% to £1,334.4m for the nine month period (the period) ended 30 September 2009 (30 September 2008: £1,121.6m), an increase of 4.7% at constant exchange rates.
Average premium rate increase on renewal business for the period of 4.8% (30 September 2008: decrease of 1.9%)
Constant currency premium growth during the period of 17.8% in Brit Reinsurance and 26.4% in Brit UK reflects improving pricing and positive movements in prior year premium estimates for both SBUs and additionally for Brit UK, distribution successes. An 8.4% reduction in premium written at constant currency in Brit Global Markets is a result of continued active management of the underwriting portfolio and the non-renewal of business that no longer meets the Group's required return on capital.
No significant catastrophes in the third quarter and movements in prior year claims reserves in line with expectations.
Investment return for the period of £119.8m, a non-annualised return of 3.6% (30 September 2008: loss of £11.8m and -0.4%)
Dane Douetil, Chief Executive Officer of Brit Insurance Holdings PLC, said:
"There has been a continued focus on portfolio management during the quarter and our decision to grow the catastrophe book whilst rebalancing the Global Markets business is beginning to bring tangible benefits. The UK business continues to make steady progress benefiting from a slight rate tailwind and the increased penetration that comes with becoming an established carrier. Our investments have had a further good quarter but returns are likely to be muted in 2010 owing to narrower credit spreads and the low level of yield available from government securities.
"As we look towards 2010 the rating environment for the Reinsurance and Global Markets divisions is finely poised and we remain alert to the opportunities and threats this will bring. The direction of the UK market is more clearly positive with further rate improvement undoubtedly required to address certain areas of inadequate pricing. With a diversified underwriting platform already established, the Group is well placed to manage its way successfully through an ever-changing insurance market."
Financial performance
Business written and ratings
|
Gross written premium |
Growth at |
|||
|
9 months ended |
9 months ended |
constant |
||
|
30 September 2009 |
30 September 2008 |
Growth |
FX rates |
|
|
£m |
£m |
% |
% |
|
|
Brit Global Markets |
660.0 |
612.7 |
7.7 |
(8.4) |
|
Brit Reinsurance |
338.0 |
245.4 |
37.7 |
17.8 |
|
Brit UK |
335.3 |
262.1 |
27.9 |
26.4 |
|
Other underwriting |
1.1 |
1.4 |
- |
- |
|
Group |
1,334.4 |
1,121.6 |
19.0 |
4.7 |
|
Premium rate movement estimates |
9 months ended |
9 months ended |
12 months ended |
|
30 September 2009 |
30 September 2008 |
31 December 2008 |
|
|
% |
% |
% |
|
|
Brit Global Markets |
4.7 |
(1.7) |
(2.0) |
|
Brit Reinsurance |
7.8 |
(3.1) |
(3.3) |
|
Brit UK |
3.4 |
(1.4) |
(0.8) |
|
Group |
4.8 |
(1.9) |
(1.9) |
Estimates are based on the Group's underwriters' estimates of rate changes, including adjustments to terms and conditions, and relate to renewal business only, since this represents the business with the best year-on-year data.
Brit Global Markets (50% of Group premium)
Following significant growth in previous years, Brit Global Markets continued to consolidate its position in the third quarter of 2009. Gross premium written reduced by 8.4% on a constant currency basis for the nine months to 30 September 2009 compared with the corresponding period of the previous year. Over the last 18 months approximately £150m of premium has not been renewed as the Group exited lines of business that could no longer sustain the required long-term rate of return, e.g. US Medical Expenses, and managed the cyclicality of others, e.g. Financial Institutions. The Group has been focused in addressing the SBU's cost base throughout this process. Meanwhile the group took advantage of improving returns in Marine and Property and has seen particular opportunities in Marine Hull, Energy, Lender Placed Property and Open Market Property.
The claims environment in the third quarter was in line with that seen in the first six months of 2009. In addition estimates for prior year major claims remain unchanged.
Brit Reinsurance (25% of Group premium)
Brit Reinsurance continued to take advantage of improved rates and terms and conditions across its portfolio with gross premium written growth of 17.8% to 30 September 2009 at constant currency. The Property Treaty North America (catastrophe and risk) account represents 34% of the Reinsurance portfolio and to date has experienced low claims activity. Other classes have seen good trading conditions including Casualty Treaty which continues to benefit from low claims frequency in catastrophe lines and materially higher rates with lower exposure in longer tail lines.
Brit UK (25% of Group premium)
In an improving, but still competitive, commercial insurance market in the UK, the Group continues to focus on building its product offering and distribution capability. Constant currency growth of 26.4% reflects some good distribution wins, particularly in the micro end of the SME market, but also positive prior year premium revisions. Excluding movements in estimates of prior year premium, premium growth was 17% on a constant currency basis. Overall results in the third quarter demonstrate similar trends to those reported in the first half of the year.
Investments
During the nine months to 30 September 2009, total cash and investments increased by 5.8% to £3.4bn.
|
Asset allocation |
At 30 September 2009 |
At 30 September 2008 |
At 31 December 2008 |
|||
|
|
£m |
% |
£m |
% |
£m |
% |
|
Equities |
99.4 |
2.9 |
125.9 |
4.3 |
117.4 |
3.6 |
|
Fixed income |
2,208.6 |
64.6 |
1,925.6 |
65.3 |
2,162.5 |
66.9 |
|
Specialised investment funds |
100.0 |
2.9 |
143.1 |
4.9 |
113.1 |
3.5 |
|
Cash and cash equivalents |
1,014.3 |
29.6 |
752.9 |
25.5 |
840.7 |
26.0 |
|
Total |
3,422.3 |
100.0 |
2,947.5 |
100.0 |
3,233.7 |
100.0 |
The extraordinary liquidity measures introduced by governments worldwide and an improvement in economic conditions have combined to produce strong results for investment markets in the third quarter. In addition to continued strong performance in equities and corporate bonds, the last quarter also witnessed a rebound in government bond prices. The Group's asset allocation remained relatively constant during the last three months, although the proportion of corporate bonds held in non-financial sectors continues to increase.
The investment return to 30 September 2009 (non-annualised) is set out below.
|
Pre-tax return |
9 months ended 30 September 2009 |
9 months ended 30 September 2008 |
12 months ended 31 December 2008 |
|||
|
|
£m |
% |
£m |
% |
£m |
% |
|
Equities |
12.1 |
15.4 |
(23.9) |
(13.9) |
(36.7) |
(24.0) |
|
Fixed income |
84.4 |
4.1 |
21.0 |
1.1 |
89.4 |
4.6 |
|
Specialised investment funds |
12.4 |
13.0 |
(25.5) |
(10.9) |
(69.9) |
(38.8) |
|
Cash and cash equivalents |
10.9 |
1.2 |
16.6 |
3.4 |
24.6 |
4.6 |
|
Total |
119.8 |
3.6 |
(11.8) |
(0.4) |
7.4 |
0.2 |
The Group delivered an investment return of £60.6m over the past three months, bringing the year-to-date return up to £119.8m. Returns in equities and specialised funds exceeded 10% for the third quarter, owing to the rise in stock markets and improved conditions in the leveraged loan market. Corporate bonds have been the single largest contributor to performance in an absolute sense, delivering nearly 40% of the Group's year-to-date investment return as a consequence of accelerated spread tightening. Government bonds have also performed well recently, as yields have reversed much of the increase seen during the spring. Cash rates continue to recede, with 3-month LIBOR now only 28bps in USD and 54bps in GBP.
Headcount and expenses
Group headcount at 30 September 2009 was 730 and has remained broadly constant since 31 December 2008 (725). Expenses (excluding bonus costs which are a function of profit before tax) have shown similar trends to the six months to 30 June 2009.
Foreign Exchange
The Group experienced a foreign exchange benefit in the third quarter of £33.3m. This is made up of a positive effect from foreign exchange on non-monetary items of £15.7m and other FX of £17.6m; both items reflect the weakening of sterling versus a basket of the Group's trading currencies. At 30 September the year to date charge relating to foreign exchange on non-monetary items was £57.9m and other FX was a charge of £3.3m.
Capital and liquidity
The Group's main insurance carriers, Brit Insurance Limited (BIL) and Lloyd's Syndicate 2987, benefit from strong ratings from the major rating agencies. BIL's ratings of A (Strong) with stable outlook from Fitch and A (Excellent) with stable outlook from AM Best remain in the target range of mid to high 'A'. Syndicate 2987's effective rating from trading through Lloyd's is A+ (Strong) from Standard and Poor's and Fitch and A (Excellent) from AM Best.
As announced on 30 July 2009, the Board recommended an interim dividend for 2009 of 7.5p per share. This was paid on 7 September 2009 and totalled £23.2m.
On 15 August 2009 the Group called its US$15.0m floating rate notes issued in June 2004. At 30 September 2009, the Group's gearing ratio1 is 25.6% (30 June 2009: 24.0%) and remains within the Group appetite to retain a gearing ratio below 30%.
Group reorganisation
As part of the Group's development of an efficient operating structure it announced in March 2009 that it planned, subject to receiving all the relevant approvals, to redomicile to the Netherlands. The Group remains on track in finalising proposals and a more detailed announcement will be made in due course.
Outlook
The sharp recovery in the capital markets together with a benign US windstorm season has reversed much of the capital destruction experienced in the insurance industry during 2008 and early 2009. With this background, the Group expects the rate environment for a number of business lines to be finely poised entering 2010. Consequently the Group's focus on portfolio management and risk selection will be even more important.
Currently Brit Reinsurance is experiencing the best trading conditions of the three SBUs and for Property Catastrophe the Group is expecting to continue to run its risk appetite at the upper end of its risk tolerance. At this stage pricing across the SBU is expected to be under only marginal pressure in 2010 and potential margins are anticipated to remain good.
Expectations in Global Markets are for less uniformity between pricing across the SBU. Under Matthew Wilson's leadership, the SBU has made good progress over the last 18 months and will continue to make tough decisions when allocating capital within its diversified portfolio. With, however, much of the restructuring now done, tangible benefits should start to emerge. Furthermore pockets of good opportunities are still being acted on and this is evidenced by the Group's increased exposure to Marine Hull, Energy, Lender Placed Property and Open Market Property.
The Group anticipates the UK market will experience continued price rises through the remainder of 2009 and 2010, and is well placed to enhance returns once a demonstrable turn in the UK market occurs.
Recent investment returns for the Group are unlikely to be sustained, owing to the simultaneous contraction of credit spreads and decrease in government bond yields experienced during the third quarter. Today's low yields will place further pressure upon next year's expected investment result.
Positive premium rate movements in 2009 combined with active management of the underwriting portfolio have improved the position of the Group heading into 2010. Furthermore, with a diversified underwriting platform developed during the last underwriting cycle, the Group is now well placed to manage its way successfully through an ever-changing insurance market.
1 Gearing ratio: Ratio, in percent, of total borrowings divided by total capital resources.
For further information, please contact
|
Dane Douetil, Chief Executive Officer, Brit Insurance Holdings PLC |
020 7984 8500 |
|
Neil Manser, Head of Investor Relations, Brit Insurance Holdings PLC |
020 7098 6980 |
|
David Haggie/Peter Rigby/Juliet Tilley, Haggie Financial |
020 7417 8989 |
Notes to Editors
Brit Insurance's operations comprise three strategic business units: Brit Global Markets, Brit Reinsurance and Brit UK. All three have access to the two regulatory vehicles through which Brit Insurance underwrites: Brit Insurance Limited which is a UK FSA regulated insurance company and Lloyd's syndicate 2987 which is managed by Brit Syndicates Limited. Brit Insurance has UK underwriting offices in London, Reading, Birmingham, Bristol, Glasgow, Leeds, Darlington, Belfast and Manchester.
www.britinsurance.com
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