Billions of pounds have been maintaining insurers' profits, says Allianz chief
Allianz chief executive Andrew Torrance has warned that the billions of pounds of reserve releases that have maintained insurers’ profits in recent years will soon dry up.
Speaking as the insurer reported growth in business volumes and underlying profits in its 2007 results, Torrance said: “Reserve releases will not go on indefinitely for the industry. The feedback from the market is they will run out.”
Insurers put away money in good underwriting years to release in less profitable times. Norwich Union for instance released £430m of prior year reserves in 2007, up from £385m in the previous year, in order to boost its profits, which had been hit by this year’s floods.
Torrance declined to specify the exact level of prior-year reserves released by Allianz in 2007, but said it was of the order of £100m.
He said insurers must increase rates to a level where they can make a profit without relying on reserve releases. “Both private and fleet motor rates are now moving consistently upwards, we are only just beginning to see the green shoots of increased rate strength in the property and liability accounts. This needs to move forward if acceptable accident year returns are to be made, and capital retained in the UK market.”
Allianz reported a 9% increase in business volumes in 2007, but the severe weather events of the year slashed its profits by £83m.
Pre-tax profit for the year was £197.1m compared to £239.4m in 2006. Net written premium income grew to £1.40bn from £1.28bn in 2006.
Torrance said if the January storms and the summer floods were excluded, profit for the year would have been £280m.
Allianz’s commercial lines business grew 10.9% in the year, while the retail business grew 6.3% compared to last year.
Torrance said the growth of its 2006 acquisitions Home & Legacy and Premierline had been below the “aggressive” targets set. “Both businesses did well in absolute terms but not as well as planned,” he said.