UK Insurance - Key Facts

The UK insurance industry is the third largest in the world and the largest in Europe. It manages investments amounting to 26% of the UK's total net worth and contributing £10.4bn in taxes .

It employs some 290,000 people. This is more than a quarter of all financial service jobs, and twice as many as are employed  in the combined electricity, gas and water supply sectors.

There are over 1000 companies authorised to write general insurance business in UK, and a further 300 are authorised to write long term savings, pensions and protection products.

The insurance sector is responsible for investments totalling £1.8 trillion, equivalent to 26% of UK's total net worth.

It is also a major exporter - about 30% of its net premium income comes from overseas business, most of which is long term business.

Of the 26.3 million households in the UK in 2011, an estimated 19.7 million households have contents insurance, and 16.6 million have buildings insurance from which 2.1 million claims were made with a total value of £3.3 billion, or the equivalent of £9.0 million per day.

23.8 million private vehicles were insured. 3.2 million claims were notified in 2011 resulting in payments to customers of £19.4 million each day totalling £7.1 billion.

£8.8 million was paid to customers each day for accident and health claims.

26.2 million travel insurance policies were bought by consumers in 2011. 0.7 million claims were made in 2011, resulting in £1.1 million paid to customers each day





Source: Association of British Insurers report

Direct Line IPO, Hill Insurance

Royal Bank of Scotland has found buyers for the full 33% stake of insurer Direct Line it has put up for sale, within 3 days of the 9 day marketing period. It had set a price range of 160-195 pence last week. Direct Line would be worth £2.66bn at the mid-point of quoted price range.

Goldman Sachs and Morgan Stanely are running the offering, and are joint bookrunners together with UBS.

In another blow to Gibraltar insurance industry, Gibralatar-based Hill Insurance company is into liquidation.Court documents for the winding-up reveal the bonds it used as shareholders' equity were either non-existent or did not belong to the company.

This liquidation follows hot on the heels of Lemma insurance's liquidation last week.

Lemma Europe Insurance put into administration

The Gibraltar based insurance company Lemma Europe Insurance had been ordered by the Gibraltar regulator from making any claim payments. The insurer faces a winding-up order from the Financial Services Council (FSC), which will be heard in the Gibraltar Supreme Court and a liquidator will also be appointed.

It has been confirmed by a FSA spokesperson that UK policyholders with policies with Lemma are covered under the Financial Compensation Services Scheme.

It is worth mentioning that another Gibraltar based insurer Aldgate Insurance company has wound up in September 2009, leaving customers with outstanding claims.

Lloyds of London returns to making profits in the first half of 2012

Year 2011 was a really bad year if we look at the list of catastrophic events that affected the insurance industry. The year started off quite poorly with heavy flooding in Australia, Cyclone Yasi and a destructive earthquake in New Zealand. On March 11, 2011 we had a watershed catastrophe which changed how the world perceives nuclear power as a viable source of energy - the Japanese earthquake and the ensuing Tsunami.

If that wasn't enough, we had a series of Tornadoes in the USA in April/May time, and wildfires in Texas which all led to heavy losses for insurance. There were two more earthquakes in New Zealand later in the year, and England added its bit to the woes of an already terrified insurance industry with the unprecedented riots that spread throughout the country.

One might have hoped for a quieter end for the year, but as it was not to be! Thailand was lashed with heavy rains and devastating flooding hitting Lloyd's of London with over more than £1bn from a single event which is in the same range what it cost it for the Japanese Tsunami. If you haven't guessed it already then last year was the second most expensive year on record for the insurance industry in terms of losses arising out of natural disasters.

So the news that Lloyd's is now back in profit makes it a news really worth celebrating! It made a profit of £1.5 billion compared to a loss of £697 million in the same period for 2011. It might be a celebration bit too early when Chairman John Nelson was quoted as saying he was 'highly conscious' that the Atlantic windstorm season was currently underway. 

Read more at: http://www.thisismoney.co.uk/money/article-2208777/Lloyds-London-returns-profit-quiet-period-natural-disasters.html?ito=feeds-newsxml

Solvency II series

Dear readers

I am planning to start a series on Solvency II, where I will be talking about Solvency II as a regime in general, and at the same time would be discussing a different kind of risk based on my understanding of Solvency II directive and/or QIS5 technical specifications. To begin with I plan to put one post each weekend, and if I can find more time during weekdays, I will post more during the weekday.

Also, towards the beginning of the next year, I will begin to post my/market views on topics in insurance of general interest.

So, Watch This Space...!!

Ageas to purchase Groupama; move to GI

Despite the economic slowdown, it seems the insurance industry is seeing few actions. While the hottest news is that of DLG going public, Ageas has indicated firm plans of increasing its presence in the UK General Insurance market by confirming the purchase of Groupama's UK operations (other than broking arm) for £116m. This can be seen as a second major acquisition by the company after acquiring Kwik Fit Insurance Services two years ago.

If approved, this deal will see the Belgian financial group, formerly known as Fortis, become the United Kingdom's fifth largest Non-Life insurer with 5% market share and fourth largest Private Motor insurer.

Groupama had run into serious financial trouble after enduring losses on Greek sovereign debt and stock market investments, and this sale is a part of its efforts to shore up some cash. It had earlier sold part of its business to Allianz.

Ageas has openly expressed its intentions to expand its presence in General Insurance business, partly driven by low investment returns which make life insurance business less profitable due to guarantees attached to products sold.

Groupama's UK business employs some 600 heads, and according to analysts, some redundancies are inevitable. In 2011 GICL reported after-tax profits of £25.9m with a combined ratio of 97.8%.

Direct Line to float

On September 14th 2012, RBS (Royal Bank of Scotland) has filed its intention to float its insurance arm, Direct Line Insurance. As a part of terms and conditions of government's bailout, European regulators have ordered RBS divest the entire insurance portfolio, whose brands include Churchill and Green Flag, by end of 2014.

The UK IPO market remains tight, with just $789m-worth of shares floated this year, according to Dealogic. Equity analysts have estimated a post-floatation value of £3bn for Direct Line, but industry experts have suggested that investors would demand a significant discount to this figure This is partly due to bank's 'forced-seller' status. If it goes ahead at this figure, it will make the biggest flotation of a UK company since Standard Life in year 2006.

Royal bank of Scotland is sounding out retail stockholders about offering shares in Direct Line to the public. Few companies that have listed in London in recent times have offered shares directly to private investors. This means that public has to wait for the shares to start trading on the secondary market. Brokers say that dealing with retail clients can be time-consuming and expensive.

On 24th September, Direct Line added two directors to its board just days before it is expected to set out an indicative price range for its initial public offering. The two directors are Glyn Jones and Mark Cotton.

Earlier on 5th September, the insurer had announced that it will be cutting up to 900 jobs as a part of a cost-cutting measure to make savings of up to £100m by the end of 2014. It is likely to close the Teeside operation, which employs around 500 people. There are also plans to cut further jobs in thier Bromley office. Notably the workforce for Direct Line had more or less stayed static at around 15,000 employees over the last two years, whereas the parent group had seen a drop of nearly 10% in the same duration.

Earlier this week, the German insurer Talanx scrapped its plan to launch an IPO, complaining of a lukewarm investor interest, days after suggesting it will float the business. It has however again made a fresh attempt to float, in a hope to raise 500M EUROS compared to initial target of 700M EUROS.



Disclaimer: Any information provided in my blog posts is picked from different sources coming out of an internet search, and particularly Financial Times (http://www.ft.com/cms/s/0/caddf264-fdc4-11e1-9901-00144feabdc0.html#axzz27I6EEZwW).