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Amlin reaps from reinsurance strategy

Shares in the Lloyd’s based (re)insurer Amlin plc have climbed to a new high of 314p on the London Stock Exchange as the company gave another upbeat trading statement last week.

With less than a month to go until year-end, the company is reaping the rewards of its decision a year ago to cut back on its reinsurance spend in the aftermath of the leap in catastrophe rates following Hurricane Katrina.

Pushing the company’s share price up by over 7 percent in a week, Amlin’s chief executive Charles Philipps told investors that the full-year result should now be “well ahead of current market forecasts” with a current 2006 claims ratio of only 10.5 percent, its lowest yet, assuming no major cat losses in the last month of the year.

Shares in the group were trading at 314p today after the company said last week that it had increased its business written by 25 percent for the year.

Despite the heavy storm losses last year, Amlin declared a record result of £182.7mn in 2005 through the judicious use of reinsurance/retro. But, in the face of climbing catastrophe rates after Hurricane Katrina, the group reduced its overall reinsurance spend from 17.7 percent of gross business written last year to around 9.4 percent this year. This meant the company would be better positioned to reap the reward of its underwriting if losses this year were less than feared – as is proving the case.

Morgan Stanley analyst David Collins said investors should expect close to fifty percent book value growth in the “Best in Class” company over the next two years.

“Today's trading statement from Amlin suggests to us that the company's underlying earnings power is stronger than previously thought,” he noted. “We had reckoned that a 'blue-sky' catastrophe free 2006 could deliver up to 37.5p of earnings, but it now appears that nearer 40p is more likely,” he added while increasing his price target on the company from 315p to 330p. 

Amlin said that the average renewal rate increase for Syndicate 2001 for the first nine months of 2006 was 7.9 percent with renewal retention at 79 percent. The non-marine division experienced the highest levels with rate increases of 12.4 percent and a retention rate of 81 percent.

The group’s gross written premium to 30 September was £822mn, up a quarter from the prior-year period. Syndicate 2001’s gross written premium to the end of September was £730mn compared to £657mn for the previous year, including £26mn written on behalf of Amlin Bermuda.

Amlin Bermuda has written a total £118mn of premium income with the company adding that this was mainly reinsurance business “where the rating environment has been strong”.

The company also reported “strong” investment performance with equity returns for the first nine months of 2006 reaching 9.3 percent. Amlin’s weighted average return on cash and investments, of £2.2bn, was 3.3 percent to the end of October.

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