Allianz chief hails broker book but laments state of commercial market

The insurer reported gross written premiums (GWP) of £443.5m, an increase of 7.8% compared to the same period of 2010, along with a drop in profit before tax of £2.3m to £34.4m.

The combined ratio of the overall business deteriorated very slightly to 96.9% (Q1 2010: 96.5%).

In contrast to previous years, it now appears that the retail part of the company has switched places with the commercial arm in terms of performance.

Although premiums in commercial were up by £16.7m the combined ratio suffered a 2.2% drop. In contrast, the retail division delivered a buoyant result lifting GWP by £15.5m to £189.5m and improving its combined ratio by 2% to 99.7%.

Mr Torrance blamed lower investment returns for the overall dip in profit. However, he said he was very pleased with the performance of broker retail book which saw a rise of 30% and 40% in premium income in motor and household respectively.

However he put most of this down to rate increases rather than any new influx in broker business.

“We are beginning to see our policy account rise but it is rising modesty. On household it has gone up quite nicely – household rates are up 5% which, in the context of the quite frequent incidences of adverse weather, is not nearly enough premium income to pay for weather events,” he said.

Although Mr Torrance said he was pleased with the performance of the overall retail book, he said that, as that sector had “been on its knees” in 2009 and 2010, there was still a long way to go.

Inadequate returns
In contrast, he described the commercial market as “bumping along the bottom”. Rather than point to new capacity coming into the market as the problem, he said the reason for continued soft rates was that insurers that had lost market share in commercial were now aggressively seeking to take it back, particularly in certain areas.

“In commercial it is a combination of getting all the rate strength that we can in the business but at the moment there is not a great deal [coming through]. In certain segments of this business we are making inadequate returns with the worst being the mid-market commercial property account. We have had soft rates in commercial lines for the last seven years which is the longest I can remember,” he said.

On the legal expenses side, Mr Torrance hailed a performance that saw income grow by 39% and which led him to confidently describe Allianz as a market leader in after the event insurance.

However he did concede there was some uncertainty as a result of the Jackson proposals turning his attention in particular to the thorny issue of referral fees.

“There is some uncertainty here but we’ve got a very agile team in the legal protection business,” he said. "Referral fees should be banned and whatever they may be replaced with should be too. The industry needs to stop incentivising people to make claims but banning referral fees is something that insurers will work closely with the Association of British Insurers on. There is a real consensus among insurers here. The only ones who don’t share this are the pure legal expenses carriers,” he added.

Overall, although he said it was too early to predict what 2011 would look like, Mr Torrance said he believed Allianz was well placed to deliver a positive set of year end results but warned that consistently strong rate rises in the commercial market in particular would be “warmly welcomed”.