August 4, 2020

How is the health of the insurance market?

How is the health of the insurance market? This is a good time to find answers to that thorny question as we enter the insurance results season. Hiscox boss Bronek Masojada said it had been a “testing six months”. This may be the understatement of the year.

Alongside the insurance results, we also examine the merger & acquisition activity along with new investments in the insurance market, all looking very positive. Sadly, there are also a couple of market casualties to report.

Insurance Results Season

In terms of health of the insurance market, the insurance half year results give us the best insight. They certainly commanded the widest press coverage in July. Understandably, this has been an especially interesting time to review results. The insurance market has been operating with all the challenges of the COVID-19 pandemic so this is the first real opportunity to assess the impact. Overall the leaders feel the outlook is positive, despite the financial challenges experienced through this pandemic. Here is a snapshot of some of the numbers released:

  • AA plcSimon Breakwell, Chief Executive of the roadside recovery specialist, described the half year results as a “”remarkably strong performance”. The reported revenues of £478m resulted in a pre-tax profits of £26m.
  • Admiral Group:  These interim results make good reading all round. As a headline, the group’s share of profit before tax was £286.7 million, which represents a 30% increase from the same period in 2019.
  • Ageas UK: Ageas recorded a drop in its post-tax result to £22.6m. Their new CEO Ant Middleton focused on the positives – “…we have a stable business with solid foundations and confidence we will emerge strongly from a challenging period for everyone. “
  • AIG: Headline reads “AIG suffers £6 billion loss in Q2”. The article explains the reasons and the AIG chief executive Brian Duperreault, focused on the positives… “Our core businesses performed well in the second quarter…”
  • Allianz Group:  The insurers operating profit for the second quarter of 2020 was around £2.3 billion. Allianz were pleased with a ‘still profitable quarter’, despite an 18.8% decrease from the same period last year. They should be pleased as GWP almost doubled.
  • Aon: As expected from such a diverse company, there is a mix of results from the different business lines. Overall, the results are viewed as positive, although the Aon Press Release concluded “Nonetheless, positive full-year results for 2020 are not a sure-fire thing, just because the results so far have been positive…”
  • Arch Capital Group: Growth in gross written premium to $2.3 billion, but an overall underwriting loss of $22.5 million.
  • Arthur J Gallagher:  J Patrick Gallagher, CEO announced “we delivered an excellent second quarter”, reporting new business generation at pre-pandemic levels throughout Q2 of 2020.
  • Aspen: Aspen Insurance Holdings Limited has reported an operating loss after tax of around £36.2 million. However, excluding COVID-19 losses, the picture is somewhat different. Without the losses attributed to COVID-19, the company reported an operating gain after tax around £104.6 million. They also reported a 14.2% increase in gross written premium.
  • Aviva: Operating profits of £1,225 million, slightly down from the 2019 figure of £1,386 million. Economic returns, however, climbed to reach £890 million, up from H1 2019’s £780 million.
  • Axa: Net income was around £1.29 billion, which is a 39% fall from the same period last year. The drop in revenue has been mainly attributed to COVID-19
  • Beazley: Beazley posted a half year pre-tax loss of approximately £10.8 million. In a more positive vein, Beazley’s CEO Andrew Horton noted that the speciality insurer has achieved strong premium growth of 12% in the first half of the year.
  • Brit Ltd: Operating loss (before FX and tax) of around $193.6 million and increase in gross written premiums to $1,282.5 million
  • Chubb: Chubb finished the first half of 2020 with a net loss. The half year report from Chubb included this statement from Evan G Greenberg, the CEO: “It was a difficult quarter for Chubb as the COVID-19 global pandemic, an event of historic proportions, impacted both our earnings and growth, and overshadowed the core underlying strength and vitality of our company,”
  • Direct Line Group: The Company are so pleased with their results that they will pay a special dividend. The insurer has posted a pre-tax operating profit of £264.9 million for the period ending June 30 2020.
  • Generali Group: Although reduced from 2019, the Group returned a half year net profit of 774 million Euros with an increase in gross written premiums to 36.5 billion Euros.
  • Ecclesiastical Insurance: Ecclesiastical Insurance has posted a pre-tax loss of £59.7m for the first six months of 2020. Mark Hews, Group CEO, did admit the headline loss was disappointing. However, he remains upbeat about the future, saying “Our underlying performance is resilient and we are starting to see activity returning to normal levels.”
  • ERS: The specialist motor insurer ERS announced a profit for the first half of £28.2m (H1 2019: £3.1m). The company did experience an 8% year-on-year decline in GWP, attributed almost entirely to commercial customers temporarily pausing coverage for their vehicles.
  • Hastings Group: Very positive news to report here…increase in gross written premium, increase in net revenue and increase in pre-tax profit to £63.5 million. Coupled with all this, Hastings confirmed they have agreed the terms of a sale to a consortium, subject to shareholder and regulatory approval,
  • Hiscox: Hiscox reported a £1.39 million loss for the first half of the year. Gross written premiums were also down by 4.4%.
  • Lancashire Holdings:  The Lancashire Group reported a pre-tax loss of £17.7 million for the first half of the year – but an increase in gross written premiums to approximately £382 million
  • Liberty Mutual: Liberty Mutual Holdings suffered a net loss of around £244 million for the second quarter of 2020. Approximately half of the COVID-19 losses were attributed to event cancellation.
  • Mapfre: MAPFRE’s revealed that its revenue for the first six months of 2020 totalled €13.28 billion, an 11.8% decrease compared to the same period last year.
  • Markel Corporation: Markel posted around £250.3 million loss for the first half of 2020. However, there is positive news in that the second quarter was profitable.
  • QBE: QBE posted a £546 million H1 loss. The company still declared an interim dividend, showing their optimism for the future.
  • Royal London: Royal London recorded a pre-tax loss of £181 million for the first half of 2020.
  • RSA: RSA reported a rising Group underwriting profit but falling premiums for the first half of 2020. Following on from these interim results, the Company shared details of plans to reduce running costs in the UK. 
  • Sabre: The company recorded a half–year profit, albeit down slightly from 2019. The gross written premiums of £86.9 million was also lower than the same period last year. However, this is in line with the company strategy of “prioritising underwriting profitability over volume”.
  • Saga: The interim results for the six months to July 31 from Saga record a loss before tax of £55.5 million. However this figure includes a £60 million impairment of travel goodwill, reflecting the impact of the coronavirus crisis.
  • Swiss Re: Net loss of approximately £0.84 billion. However, “Swiss-Re has maintained its industry-leading capital position for the first half of 2020”.
  • Willis Towers Watson: Net income for the second quarter was $102 million. This is a decrease from $149 million in the equivalent quarter of 2019.
  • Zurich: Top level figure of around £1.29 billion business operating profit for the first half of the year. Although this was 40% down on the same period in 2019, the CEO Mario Greco was positive about the Group performance. ““While our operating environment changes, our goals are the same – we remain confident in the strength of our business, our strategy, and our ability to adapt to changing needs.”

Mergers & Acquisitions

  • Brolly: In arguably the biggest M&A news of July, Direct line announced it would acquire Brolly. Brolly is a UK based digital insurance app. It was originally founded by former Aviva underwriter, Phoebe Hugh together with former Skype engineering manager Mykhailo Loginov. The acquisition is expected to complete in this quarter, although the terms are not being disclosed.
  • Aston Lark: Aston Lark announced the acquisition of Private Healthcare Managers (PHM), a specialist Employee Benefits intermediary providing advice and tailored solutions to SME and corporate clients for their Private Medical Insurance and Group Risk benefit packages. This follows two earlier acquisitions this year in Ireland, namely Robertson Low and Wright Insurance Brokers.
  • Jensten Group: July was certainly an active month for the Jensten Group, with two acquisitions. This is a shining example of what can be achieved, despite all the restrictions of the pandemic.  They started with Senior Wright limited on 1st July and ended the month with the announcement of the purchase of HTC Associates Ltd.
  • PIB Group: According to Insurance Age, PIB spent £75.6 million on deals in 2019. The consolidation activity has not slowed this year with the news that PIB buy Stockton-based UKinsuranceNET. The PIB group have now concluded 30 deals and confirm they have more in the pipeline.
  • Hastings: Nothing definite at this stage, but Hastings reveals possible sale. Watch this space.
  • What next for broker M & A ?: Slipcase published an interesting market analysis of the impact of COVID-19 on the broker M & A activity. The conclusion? “The early Covid-19 slowdown looks to have been a blip rather than a wholesale change.”

Investments

A positive indicator for the health of the insurance market has been the continued investment into the sector. Here are a few notable examples:

 Other insurance market news

  • Financial Conduct Authority (FCA) Business Interruption (BI) Test case: The BI Test case started on 20th July and lasted for 7 days. Full details of the background and a draft transcript of each day of the trial have been published on the FCA Business Interruption Insurance web page. Lord Justice Flaux is working towards a mid-September judgement date. He did however stress this is not a binding indication.
  • Flood insurance challenges: Flood-Re’s annual report, reported  the gross cost of claims in 2019/20 as £160 million. This was more than the first three years of operation combined. It is little wonder therefore that they welcomed the announcement from the government that Government invest an additional £170 million in flood defences.
  • Lloyds Bank: The article Lloyds Banking Group to diversify further into insurance reports that the Lloyds insurance and wealth division currently helps around 10 million customers.
  • Tesla sets out the vision: Tesla CEO Elon Musk has announced his intention to launch “a major insurance company”. Although the initial plans is to launch insurance to a handful of US states, there is an intention to expand through the US…no news yet of international aspirations.

Finally, a few insurance market casualties:

Although this news is not good, it is a credit to the industry that this is not a longer list.

  • The insurtech start-up Coverly has confirmed it is closing down and is no longer offering small business insurance. The article Coverly is closing has been updated with the statement from the Parent Company Bibby Financial Services.

“The launch of Coverly has been a real success and the team have achieved a great deal in a short space of time, reaching more than 3,000 customers in just over a year. However, Coverly requires further cash injection in order to grow. In early 2020 we began to look to the external market for this investment. Since the outbreak of Coronavirus we have been unable to attract the investment needed in order to support the business’s growth. As a result, we have taken the decision to close Coverly and invest in our core invoice finance and foreign exchange businesses.”

  • Gefion: The Danish Financial Services Authority confirmed that Gefion Insurance formally entered into liquidation on 13th A statement from the Financial Services Compensation Scheme confirmed they are monitoring the situation.
  • The Lloyds Market: The author of a recent review concludes that 10 of the so called ‘Lloyds Bermudians’ substantially under-performed. The article Bermuda’s failed Lloyds Experiment. includes some interesting insight and outlines the main challenges faced in this market. Between 2007 and 2017, Bermuda (re)insurers pushed into the Lloyd’s market in succession, with 16 securing platforms via start-ups or M&A. The article examined 12 of the syndicates involved.

Content has been prepared exclusively for Total Systems plc, a specialist provider of insurance systems developed for the digital insurance age.