Strategy and priorities

Corporate Solutions’ strategy is to serve mid-sized and large corporations as a lean global player. The product offerings range from traditional property and casualty insurance to highly customised solutions tailored to the needs of clients globally. By executing this strategy, Corporate Solutions aims to increase its gross written premium net of intra-group transactions from USD 2.4 billion in 2010 to USD 4–5 billion by 2015 with a return on equity between 10% and 15%.

The unique value proposition of Corporate Solutions continues to be the combination of large net capacity and innovation capabilities, underpinned by disciplined cycle management and superior underwriting. The Business Unit aims to leverage its value proposition and bring itself closer to clients by expanding its business, organically and inorganically, into new countries, as well as by growing its portfolio in those countries where it is already present with a broader product offering.

Corporate Solutions results

Recent steps taken to implement the Corporate Solutions strategy have included the strengthening of local teams in existing offices and expanding its distribution channels by obtaining a direct insurance licence in Singapore. The new licence was already leveraged in November 2013 as part of the first public-private partnership designed to foster trade finance between Singapore and emerging Asian markets. Launched by International Enterprise Singapore (Singapore’s export promotion agency), in partnership with the Asian Development Bank and Corporate Solutions, the agreement is designed to provide additional capacity to Singapore banks with emerging market credit exposures.

The Business Unit will continue to execute its strategy, focusing on underwriting excellence and sustained profitable growth.

Performance

Net income was USD 279 million in 2013, an increase of 42.3% compared to USD 196 million in 2012. The result was primarily driven by continued profitable business growth across most lines of business and increased realised gains on insurance derivatives.

Net premiums earned

Gross written premiums

(in USD billions, net of intra-group transactions; CAGR is compound annual growth rate)

Net premiums earned increased by 27.9% to USD 2.9 billion in 2013 compared to USD 2.3 billion in 2012, driven by successful organic growth across most lines of business and the expiry of a major quota share retrocession agreement at the end of 2012. Gross premiums written of USD 3.6 billion, net of intra-group transactions, are on track to reach USD 4–5 billion by 2015.

Combined ratio

The combined ratio improved by 1.1 percentage points to 95.1% in 2013 from 96.2% in 2012. The quality of the book remained consistently high year on year. Both years benefited from positive reserve development, although to a lesser extent in 2013. The expense ratio deteriorated by 1.7 percentage points to 34.5% in 2013 from 32.8% in 2012 as investment in long-term growth continues.

The property combined ratio improved by 11.4 percentage points to 89.3% for 2013 compared to 100.7% in 2012, reflecting continued profitable growth over the year and slightly lower than expected natural catastrophe losses in 2013, compared to higher than normal losses in 2012 including Hurricane Sandy.

The casualty combined ratio deteriorated by 16.7 percentage points to 108.4% in 2013, mainly due to less favourable prior-year reserve development, primarily on Motor and Accident & Health, and a large European casualty loss impacting 2013 compared to an absence of large losses in the prior year.

The credit combined ratio improved to 74.5% in 2013, compared to 82.8% in 2012, driven by continued strong performance in 2013.

In other specialty, the combined ratio improved to 95.3% in 2013 from 102.0% in 2012. The improvement of 6.7 percentage points was mainly driven by profitable growth in marine and engineering, as well as by favourable development in 2013, partly offset by various medium- to small-sized man-made losses.

Investment result

The return on investments for 2013 was 2.4%, compared to 3.2% in 2012, reflecting a reduction in the investment result of USD 38 million, mainly driven by unfavourable movements in foreign exchange from the strengthening of the US dollar in 2013. Excluding the effect of foreign exchange remeasurement, the investment result was generally in line with 2012 as the re-balancing of the investment portfolio helped offset the impact of lower overall reinvestment rates.

Investment-related net investment income decreased by USD 6 million to USD 111 million in 2013, mainly due to higher investment expenses, partially offset by the re-balancing of the investment portfolio.

Investment-related net realised gains were USD 59 million in 2013, mainly as a result of realised gains from active management of the listed equity portfolio and corporate bond portfolio, partially offset by unfavourable movements in foreign exchange remeasurement. This compares to USD 91 million in the prior year. Realised insurance derivative gains, which are not included in the return on investments, increased to USD 91 million in 2013, compared to a gain of USD 55 million in 2012. These contracts offer protection against weather perils and other risks related to insurance but are accounted for as derivatives.

Return on equity

Return on equity was 9.6% in 2013, compared to 7.4% in 2012. Shareholders’ equity decreased slightly to USD 2.8 billion in 2013, primarily due to a USD 489 million dividend to the Group.

Outlook

Pricing trends for commercial insurance are moderately softening with only a few pockets showing increases. Differences in quality between geographies and types of business exist. Corporate Solutions continues to believe it is well positioned to capture opportunities thanks to its value proposition, strong balance sheet and expanding geographic reach.