Amlin’s pre-tax profits in H1 fall short of analyst expectations

Amlin’s acquisition of Fortis’s corporate insurance arm has boosted the Lloyd’s insurer’s first-half 2010 premium income, but related costs caused it to miss some analysts’ pre-tax profit estimates.

Amlin posted a pre-tax profit of £107.6m for the first half of 2010, down from £177.1m in the same period of 2009. Amlin said nine analysts had forecast a range of £99m to £150m, giving a mean estimate of £119.3m.

Gross written premium jumped 56%, or £536m, to £1.49bn from £950.1m, largely as a result of an additional £425.1m from Amlin Corporate Insurance (ACI), as the acquired Fortis unit is now known.

Bank of America Merrill Lynch analyst Jelena Bjelanovic said that Amlin’s pre-tax profit was 6% below her firm’s expectations. “The main driver appears to be a one-off integration cost charge of £11.2m, which we had not factored in.” Citi analyst Trevor May said the profit was below his firm’s £121m forecast. “The results include a further £11.2m integration charge for ACI and a higher than expected £17.6m of foreign exchange losses.”

Amlin’s other costs, which included the foreign exchange losses and the integration charge, increased to £71.2m in the first half of 2010 from £11.3m in the same period last year.

Amlin’s group combined ratio of 88% impressed analysts – though worse than 2009’s 73% – considering the heavy catastrophes in the first half of the year, which cost Amlin $190m (£122.2m). But ACI’s combined ratio, at 100%, was the worst in the group, prompting some to suggest that the unit needed further work to bed down.

“The integration of ACI is reported to be progressing well, although the divisional combined ratio of 100% needs to improve further for the acquisition to be considered a positive development,” Numis Securities analysts Nick Johnson and Richard Gradidge wrote.

But others were more upbeat. “The 100% combined ratio at ACI was slightly worse than our 98% forecast and the additional integration charges were also more than expected,” May said. “But the planned re-underwriting is on track, with a 7% fall in premiums due to a deliberate shedding of unprofitable exposures.”

Despite the combined challenges of integrating ACI, natural catastrophe losses and falling rates (Amlin reported average price reductions of 1.7% across its lines), analysts generally saw Amlin’s result as solid. “Amlin is defensively positioned to ride out this more challenging period, and ACI is performing as we expected,” wrote RBS analyst Joanna Parsons.