Overview
Group CEO's Review
Industry Overview
The dominating events of 2005 were weather related – in particular hurricanes Emily, Katrina, Rita and Wilma. Despite this, the insurance industry proved remarkably resilient and outside the US, performances were generally strong.
The hurricanes prompted speculation about a knock on effect on reinsurance prices. However, this has so far been largely ring fenced to core US storm affected sectors including property and energy.
The rating environment in 2005 was mixed by class and region and the Group benefited from its balance of exposure to different markets at different points in the cycle. In Personal we have generally achieved single digit rating increases across core territories. In Commercial the market has been more mixed with a competitive but stable environment in some countries, including the UK, resulting in downward pressure on rates of around 5%, while in other regions, including Scandinavia, we achieved single digit rate increases. We have a similar outlook of a mixed rating environment by region and class in 2006 and in all markets we’ll continue to target growth opportunities while maintaining our underwriting disciplines. Claims inflation remains in line with our expectations.
The FTSE rose 16% and the positive impact on companies’ balance sheets coincided with a cross industry focus on capital efficiency and risk management. A key UK focus was implementation of the FSA’s enhanced risk based capital framework – Individual Capital Assessment (ICA). We endorse this approach as a way of assessing capital risk and we’ve incorporated its tools in a wide range of decision making processes. The Group also supports the broad principles behind the EU’s Solvency II initiative which aims to introduce a more risk sensitive solvency framework. It’s currently in its preparatory phase and we’ve been active in industry consultations.
In the US, work continues to secure legislation to deal with asbestos related claims. In February, debate by the Senate resulted in Senate Bill 852, the trust fund legislation, being sent back to committee. As it stands today, there is heavy opposition to the trust fund concept (although support by Senate leadership for it remains) and it’s possible that the focus could shift to a medical criteria bill or another version of asbestos reform. We’ll continue to monitor developments.
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