Personal lines motor blamed for 110% combined ratio, as insurer turns focus to commercial book

AXA UK’s chief executive Paul Evans has said the company will grow its commercial book this year, but not at the expense of rates, following results that saw the UK division’s combined ratio climb to nearly 110% for 2010, racking up yet another underwriting loss.

These full-year results follow a series of underwriting losses and dwindling net profits at the AXA UK & Ireland operating division, which includes healthcare and Irish business in addition to the two UK GI units (see figures, above).

Evans said commercial chief executive Amanda Blanc would seek to grow the business, but added: “I can assure you that AXA won’t chase rates down.”

Excluding the effects of the December weather, the UK GI businesses’ combined ratio would have been roughly 104%, AXA UK finance chief Jean Drouffe said. However, he added: “That is disappointing because we estimated we would hit a break-even point of around 101%.”

Apart from weather events, Drouffe attributed the bulk of the underwriting loss to AXA’s personal lines motor book. He suggested the company had been underwriting at a loss to grow the direct motor book, which comprises Swiftcover and the recently launched AXA Direct business.

“We have said from the beginning that we needed to have one million policies on the direct book to have a critical size. The good news is that we reached one million policies at the end of 2010. Now we have this critical size we will be able to focus more on our underwriting and risk selection.”

The motor book has also been hit by rising bodily injury claims. Drouffe estimated that AXA earned one-third of the 30% rate increase it put through during 2010. “Because claims inflation exceeded the level of premium increases earned, AXA’s combined ratio did not improve as expected,” Drouffe said.

In addition, the combined ratio has come under pressure from a higher frequency of large losses in its travel book. Drouffe expects the motor book to improve as AXA earns the remaining two-thirds of the 2010 price increases in 2011.

He also expects further motor rate rises in 2011 of between 15% and 20%. “That will bring us back to profitability,” he said.

AXA is also hoping to boost growth in its commercial lines book, which has flagged since the decision to exit unprofitable managing general agent business in 2008 and 2009. While commercial motor gross written premiums grew 10% in 2010, this was offset by a 20% decline in property and liability. Overall, commercial premiums dropped 14% to £770m.

In addition to the appointment of ex-Towergate deputy chief Blanc as commercial head, Drouffe said AXA’s 20% market share in small and micro business would stand it in good stead to turn the commercial business around. “We have a lot of data and a longstanding relationship with both brokers and clients in that area,” he said.

Meanwhile, AXA’s longstanding underwriting chief Roy Watkinson departed this week as Blanc began a shake-up of the commercial business.