Personal lines motor business running at 121% combined operating ratio
The performance of AXA’s direct motor business was under the spotlight this week as the company revealed it was “portfolio cleansing” the book, which has been hit hard by prior years’ claims.
The book cleansing comes as it emerged that underwriting chief Craig Staniland had left the company, the third senior departure in a year following the exits of former intermediary and partnership sales head Mike Keating and claims managing director Tony Peppard.
Recently released FSA returns, calculated by Insurance Times, reveal AXA’s personal lines motor business was running at a 121% combined operating ratio (COR) in 2011, despite two years of hardening rates. This ratio excludes so-called non-risk income, such as ancillary income. Including non-risk income, the COR was 117.2%.
This worrying performance has forced AXA to hack out unprofitable business and sacrifice top line in direct motor. AXA, the largest insurer in the world by premium, revealed that its global direct personal motor revenues had slumped 6% in the first quarter amid the UK book cleansing.
AXA’s UK direct motor book includes Swiftcover and its own-branded business. It acquired Swiftcover in 2007 and the direct insurer has grown rapidly through a clever marketing campaign headed by rock star Iggy Pop.
But the portfolio cleansing raises questions over whether Swiftcover, which formed in 2005, has suffered from building its book from scratch at a time when bodily injury claims and credit hire costs were exploding. Indeed, the FSA returns reveal that reserve strengthening from prior years added 11.8 points to its 2011 personal motor combined ratio.
Although AXA declined to comment on the result or Staniland’s departure, the insurer is carrying out a number of initiatives to improve performance.
Swiftcover founder Steve Hardy was promoted from direct boss to head of personal lines in 2010. One of his main aims was to bring down the expense ratio by integrating the Swiftcover IT platform across corporate and intermediary.
The IT platform is being built to give AXA personal lines an advantage in customer screening - the idea that systems will one day instantaneously credit check, claims check and eventually driving licence check prior to pricing.
Meanwhile, Nick Turner has been brought in as head of intermediary and partnerships to replace Keating, and he intends to work more closely with commercial lines to reap the benefits of the turnaround under Amanda Blanc.
Peppard was replaced as managing director of claims by AXA PPP customer service director Victoria Georgalakis in June last year.
Hardy will be under pressure to meet 2015 targets. AXA’s Paris headquarters demand a UK combined operating ratio below 97% by then.
The big issue for Hardy will be how quickly he can clear the backlog of prior years’ claims.
Underwriting performance for the current year is improving markedly, coming in at 105.7% in 2011 compared with 114.1% a year ago including non-risk income, according to FSA returns.
AXA’s overall personal lines performance is also boosted by household and travel, which are both making underwriting profits in 2011, according to FSA returns. Both accounts continue to grow this year.
The first-quarter results in 2011 show that UK personal non-motor revenues were up 9% in revenues compared with the same quarter last year.
Overall, AXA’s UK and Ireland operation achieved rate increases of 7.2% in personal lines and 3.9% in commercial lines.