£35m reserve strengthening was driven by second wave of deafness claims

AXA UK will incur £100m of claims for storms and flooding in December, January and February, UK and Ireland chief executive Paul Evans estimated.

Speaking to Insurance Times following the release of AXA’s 2013 results this morning, Evans also revealed that rising deafness claims had hit AXA for the second year running, causing the bulk of the £35m reserve strengthening the company performed in the year.

Flood claims

Evans said AXA expects to incur around £60m of claims from the December floods and storms, and a further £40 for the continued flooding and bad weather in January and February this year.

Around half of the total £100m is related to flooding alone, he added.

Deafness reserving

AXA UK’s general insurance business pumped £35m into its reserves in 2013, which added 0.8 percentage points to its all-year combined operating ratio (COR).

This was an improvement over 2012, when the company added £39m to reserves, boosting the COR by one percentage point.

However, as in 2012, the main cause of the strengthening was a spike in industrial deafness claims, which Evans said occurred between May and June in 2013. AXA strengthened reserves in response to this in the second half of the year.

Evans said that the spike in deafness claims had subsided, suggesting AXA has now accounted for the rise adequately in its reserves.

He said: “As we sit here today, we believe we have deafness fully reserved.”

However, he added that reserves for latent disease and injury claims are notoriously difficult to estimate, and further changes may be necessary.

“We might always expect to see a degree of adjustment for those reserves,” he said. But he added: “The key is that our result is now strong enough to absorb it, which it has.”

Catching a cold

AXA UK had a strong year. Despite the December weather claims and the reserve hike, the company returned to underwriting profit, posting an all-year COR of 98.9%.

A big reason for the improvement was strict underwriting. One area AXA cut back in particular was household, where brokered revenues fell 23%, according to group results.

Evans said this was partly caused by the planned exit of an MGA relationship that wasn’t making money at the beginning of 2013 and partly because AXA was “less competitive” than its peers on home business for the in the second half of the year.

AXA kept its home rates flat, while the market as a whole has lowered rates by around 8.5%.

Evans said: “The rates softened in home last year and we attributed that to some insurers deciding that it wasn’t going to rain. And it did. We didn’t soften our rates in home and that is one of the reasons why we have seen a quite substantial reduction in our home book.”

He added that those cutting home rates may have nasty surprises in their results. He said: “Those firms who discounted household believing it would be a benign year have perhaps caught a bit of a cold.”

Commercial growth

While home and motor revenues both declined, revenues in AXA UK’s £900m commercial book surged 11%.

Evans said five points of the growth were attributed to a 5% rate increase, and six points to increased volumes.

However, he insisted that AXA was not making a grab for commercial market share at the expense of profitability.

He said: “We are getting price increases in line with the market. We do lots of testing to ensure we are not buying share, and we’re not.”

He added: “We are doing a great job for brokers, and brokers are bringing us more business.”