Aviva sets 100% combined ratio target
Operating profits for Norwich Union's (NU) UK general insurance business rose by 10.6% to £676m for the year ending December 2003 compared to 2002.
NU's parent, Aviva, revealed that UK general insurance recorded an underwriting result of £50m in 2003, compared to an underwriting loss of £52m for the same period in 2002.
In commercial lines, net written premiums rose by 11% to £2.1bn with a combined ratio of 96%. This compares to a combined ratio of 102% for 2002. "We remain focused on the small commercial business sector, where we lead the market, having an achieved annualised rating increase of 25% for commercial liability and 12% for commercial property," the report said.
The combined operating ratio for personal lines in 2003 was 101%, the same as it was in 2002. NU claims that its rates had improved by 3% for motor and 4% for homeowners in 2003.
Aviva's general insurance group executive director Patrick Snowball said: "The underlying COR in the UK is 99%. It is larger than that of Royal Bank Insurance, but we have got to be very careful not to compare apples and pears.
"Certainly you could never criticise the performance of the Direct Line personal motor book. But understanding how those numbers were put together is completely impossible. There is very little transparency on that. The challenge will be what happens with Churchill."
The report said that the cost of closing Hill House Hammond, attached redundancies and cost for transferring the portfolio of business would cost £60m, which will be reported as an exceptional item in 2004.
NU has set a combined operating ratio of 100% for the next three years.
Snowball said that the drive to make an underwriting profit was one that the market has to come to terms with in a low investment return regime.
"There are capital constraints and even those without constraints still have to make a return and that means underwriting profit," he said.
CP190 is a concern for the market as a whole but not NU in particular, said Snowball. "We're holding our powder on CP190. Our reserves are very strong. We are the only multi-product, multi-distribution company left in the UK and that gives us a very good risk mitigation profile," he said.
"Look at our results on a risk-based capital model. We have reduced our solvency requirement from about 36% to 34%. And so we see that NU would thrive in this new capital structure," said Snowball.
He added: "The tail on our claims profile has gone from over two years at the time of the merger down to 1.6 years. This must be one of the shortest tails for one of the biggest insurers. This gives us a much higher degree of certainty on reserves."
It is understood that NU will be seeking to improve its credit rating this year.