The non-life insurance sector has struggled through a torrent of problems over the past year, from tornadoes and droughts to hurricanes and floods. Yet this is the nature of their industry and the best players continue to defy market challenges and be profitable. Furthermore, they are generating surplus cash which is being returned to shareholders via special dividends.
Today's results from Amlin (AML) show that the £2.1 billion cap has returned to profit and is paying a higher 'normal' dividend than the previous years. Yet the level of profit is not as good as analysts had expected. Furthermore, Amlin is not following the sector's latest trend in paying a special dividend. This explains why its shares have retreated 1.8% to 423.3p on today's financial figures, albeit coming off the back of a strong rally this year.
Amlin achieved £264.2 million pre-tax profit in 2012 against a £193.8 million pre-tax loss in 2011. It paid less in claims than it received in premiums to generate a combined ratio of 89%, down from 108% in 2011.
This is a commendable result given the trading period included Hurricane Sandy, one of the largest storms to ever impact the US and which results in storm damage across coastal regions and major flooding in lower Manhattan. Amlin claims in its financial results that the insurance industry took a $25 billion hit on Hurricane Sandy. Its share of the event was £141.6 million which formed the bulk of its £152.3 million catastrophe claims, down from £501 million a year earlier.
This reduction in catastrophe claims helped Amlin produce a profit in 2012. Yet its results are below market expectations and it appears the 4.3% increase in dividend to 24p is not enough to please the market. Many investors may have expected a special dividend on top of the regular payouts, given that many other insurers have been generous in the latest reporting season.
Lancashire (LRE), which was $45 million out-of-pocket due to Hurricane Sandy, paid a second special dividend of 68p for the year and a basic dividend of 10p. Beazley (BEZ) also had a good year. Its pre-tax profit was $251.2 million, up from $62.7 million in 2011. It paid a total dividend of 8.3p and a special 8.4p payment.
Bermuda-based Hiscox (HSX) last week announced that it would pay 18p per share 'normal' dividend to its shareholders, a 5.9% annual rise, and a further 38p a share special distribution.
Westhouse analyst Joanna Parsons says investors will be disappointed with Amlin failing to meet profit forecasts and not paying a special dividend. Yet she adds: 'Having paid out capital in the past, it is no surprise to us that the group is not returning any additional capital today over and above its dividend.’