CHIEF EXECUTIVE’S STATEMENT
“Character and principles are proven most in adversity, and the extraordinary economic adversity of recent times has proven a tough – sometimes fatal – test of businesses worldwide.”
Read moreHIGHLIGHTS
SUMMARY
Operational highlights and summary of financial performance against key performance indicators.
Read moreBUSINESS
REVIEW
Overview
The company has achieved a profit before tax for the year of £194.5 million (2008: £207.9 million) and at the end of the year reports shareholders’ funds of £1,127.6 million (2008: £1,012.5 million). After a record profit before tax for Chubb’s European business in 2008, the 2009 results represent another outstanding year and demonstrate our continued commitment to disciplined underwriting in difficult times for the market.
The company successfully completed a re-domiciliation from Belgium to the UK on 1 January 2009. 2009 therefore represents our first full year as a UK domiciled and FSA authorised company, although Chubb has operated in Europe since 1962. We believe our established position in the European insurance markets and our reputation for financial stability and specialist customer focus has been strengthened by this transition.
In 2009 we were particularly proud to have received a re-affirmation of our Financial Strength rating of A++ from AM Best, as well as the Insurance Times Award for General Insurer of the Year. These achievements represent the combination of both financial and service strength which have made Chubb in Europe such a respected brand. Our commitment for the future is to maintain that hard earned reputation.
Underwriting performance
Our insurance operations are managed in three strategic business units, namely Chubb Commercial Insurance, Chubb Specialty Insurance and Chubb Personal Insurance.
Chubb Commercial Insurance provides property, casualty and marine insurance for businesses, developed to meet the needs of individual industries. It also provides innovative products in non-traditional areas such as environmental, life sciences and event cancellation insurance.
Chubb Specialty Insurance underwrites a broad range of liability insurance including Errors & Omissions Liability (E&O), Directors and Officers Liability (D&O), crime insurance, employment practice liability and political risks. Coverage is designed to meet the demands of a wide range of industries including the financial institutions sector.
Chubb Personal Insurance consists of two sub-groups, Accident & Health and Personal Lines.
Chubb Accident & Health offer general accident policies to organisations that cover their employees in the event of an accident. Policies, such as Peoplesure, can minimise disruption to business operations if key people are unable to work as a result of an accident.
Chubb’s Personal Lines Department, operating from the UK, is a leading insurer of individuals and families with significant assets to protect and who demand superior cover and service. The Personal Lines Department offer three tiers of policy according to the sums a customer wishes to insure, starting with the ‘Initial’ policy, then our core ‘Masterpiece’ product and thirdly our ultra high net-worth policy, ‘Signature’.
A key performance indicator for insurance business is the combined ratio, which compares the cost of losses and expenses to premiums for the year. A reduction in the combined ratio therefore represents an improvement in underwriting performance. The graph below shows our combined ratios with their loss and expense components over the last 5 years:
Net combined ratios
Results by insurance class
The gross premium written and net underwriting result analysed by the accounting classes defined by UK companies legislation are shown in the table below.
| 2009 | 2008 | |||
|---|---|---|---|---|
| Gross premium written £000 | Net underwriting result £000 | Gross premium written £000 | Net underwriting result £000 |
|
| Direct insurance: | ||||
| Accident and health | 72,949 | 6,713 | 67,321 | 221 |
| Motor (third-party liability) | 4,406 | (3,485) | 3,647 | (1,970) |
| Motor (other classes) | 16,755 | 2,405 | 14,378 | 2,819 |
| Marine, aviation and transport | 34,017 | (389) | 28,485 | (8,093) |
| Fire & other damage to property | 171,342 | (3,659) | 162,710 | 6,821 |
| Third-party liability | 367,817 | 68,431 | 329,069 | 47,916 |
| Credit and suretyship | 7,217 | (2,407) | 4,644 | (4,561) |
| Assistance | 813 | 486 | 937 | 591 |
| Miscellaneous | 102,356 | 28,970 | 90,479 | 16,539 |
| 777,672 | 97,065 | 701,670 | 60,284 | |
| Reinsurance acceptances | 20,923 | 7,704 | 43,353 | 21,591 |
| 798,595 | 104,769 | 745,023 | 81,875 | |
Total gross premiums reported grew by 7% in the year. However, this growth is primarily attributable to currency fluctuation. Excluding currency fluctuation growth was almost flat, reflecting the discipline maintained in our underwriting in a soft market for most lines. With limited exceptions in some marine and financial institutions lines, during 2009 we continued to see competitors pushing rates below those acceptable to us, as well as recessionary pressure on premium drivers such as property values, turnover and employee numbers.
Claims and prior year reserve movements
Net claims incurred for 2009 were £332.8 million (2008: £318.8 million). The company’s insurance portfolio is well diversified and is not significantly exposed to US windstorm or earthquake catastrophe events. The primary catastrophe exposure is to European weather events.
Estimates of claims outstanding are subject to the outcome of future events. Consequently, changes in estimates are unavoidable given that loss trends vary and time is required for changes in trends to be recognized and confirmed. During 2009 the company experienced overall favourable development of £128.7 million on net claims outstanding established as at the previous year end. This compares with favourable development of £108.5 million in 2008. This favourable development has principally arisen in the Third-party liability and the Miscellaneous classes. Such favourable development was reflected in the financial results in those respective years.
Reinsurance
The company is committed to maintaining strong underwriting and risk selection disciplines. Reinsurance is purchased in support of this strategy to minimise the impact of very large losses and catastrophes.
In 2009 we have kept our reinsurance costs constant at 17.1% of gross premiums written (2008: 17.0%).
Results by geographical segment
Our portfolio of business is well balanced across the main geographical segments in which we operate in Europe, with all regions contributing to the profitability of the company.
Profit before tax | 2009 £000 | 2008 £000 |
|---|---|---|
| United Kingdom & Ireland | 71,045 | 123,708 |
| Southern Europe | 45,240 | 39,127 |
| Central & Eastern Europe | 48,483 | 27,237 |
| Northern Europe | 29,751 | 17,818 |
| 194,519 | 207,890 |
Investments
Total investments at 31 December 2009 were £2,634.0 million (2008: £2,566.1 million). Over £2,123.1 million (2008: £2,154.0 million) of the portfolio is invested in fixed income government and corporate securities with a Standard & Poor’s rating of AA or better. Just over 4% of the investment portfolio is held in private equity partnership schemes. The investment portfolio is managed to ensure an overall matching with the company’s liabilities for both currency and liquidity risk.
The investment results demonstrate that our conservative investment philosophy has served us well during this period of financial market uncertainty. Our investment management objectives will continue to be to generate a stable investment income stream from a low-risk investment base with sufficient liquidity to meet the ongoing obligations of the insurance operations.
Investment income generated in the year from the portfolio was £128.4 million (2008: £104.6 million).
Expenses
The expense ratio for the company has improved slightly from 33.6% in 2008 to 33.4% in 2009. The company continues to take opportunities to improve the operating efficiency of key functions as they arise.
Capital strength
The company is required to prepare an Individual Capital Assessment (ICA) which determines the minimum acceptable level of capital based on the risks inherent in the business. Our Risk and Compliance team have developed a robust toolset for identifying and assessing operational risks which is embedded in all teams across our European operations. This risk quantification process operates alongside stochastic modelling of our insurance business to generate a comprehensive analysis of the capital required.
The Directors have recommended to the company’s shareholders a final dividend for the year of £185.0 million.
The company’s available capital, after the reduction for this dividend, is in excess of the ICA model requirement and is also sufficient to support our existing A++ Financial Strength rating from AM Best.
The company is also fully engaged in preparations for the forthcoming Solvency II capital adequacy regime.
Outlook
We expect the pricing environment to continue to be challenging over the next 12 months with rises only in lines of business affected by shortages in capacity. Recessionary factors are anticipated to continue to put downward pressure on exposure values although some lessening of this effect towards the end of 2010 may occur.
As noted in the CEO’s Statement, to continue our success into 2010 and beyond we must continue to be innovative in the way we do business. Our response to the particular risks and challenges in the current insurance marketplace is to think clearly about the different characteristics of our customer segments and align our approach more closely to their needs and those of the distribution channels they use.
Despite this difficult environment we move into 2010 building on a strong capital position and a commitment to maintaining our principles of underwriting discipline, specialist focus and careful investment.
2008 and prior figures represent the merged results of Chubb Insurance Company of Europe SA and Chubb Insurance Company of Europe plc, the companies that merged to form Chubb Insurance Company of Europe SE. Amounts relating to Chubb Insurance Company of Europe SA have been restated to United Kingdom Generally Accepted Accounting Practice from the amounts originally filed in Belgium.