Corporate Solutions
Corporate Solutions’ results were impacted by natural catastrophe events and an exceptionally high severity and frequency of large man-made losses.
“2018 was a difficult year for Corporate Solutions. However, we are taking all necessary actions required to turnaround our performance and correct the current price deficiencies.”
Agostino Galvagni
CEO, Corporate Solutions
Strategy and priorities
During 2018, Corporate Solutions continued to make progress on its long-term strategy, with continued investments into its Primary Lead capabilities and an extension of its current global network coverage to over 120 countries.
Performance
The net loss was USD 405 million in 2018, compared to a net loss of USD 741 million in 2017, with a net operating margin of –11.1%, compared to –23.5% for the previous period. The 2018 result was impacted by natural catastrophe events and an exceptionally high severity and frequency of large man-made losses, with a combined claims burden of USD 0.7 billion. The investment result was lower in 2018 compared to 2017, as the previous period benefited from higher gains on sales of equity securities.
Premiums
Net premiums earned were USD 3.9 billion in 2018, an increase of 7.5% compared to 2017, driven by growth in Primary Lead business, which more than offset the active pruning of the US General Liability portfolio. Gross premiums written and premiums for insurance in derivative form, net of internal fronting for the Reinsurance Business Unit, increased by 13.6% to USD 4.6 billion in 2018. Rates, as well as terms and conditions, moderately improved after the previous year’s natural catastrophe events. However, the rate environment remained depressed and a substantial acceleration of market hardening is required to re-establish a sustainable market environment.
Corporate Solutions results
| Download |
|
USD millions |
2017 |
2018 |
Change in % |
|
Revenues |
|
|
|
|
Gross premiums written |
4 193 |
4 694 |
12 |
|
Net premiums written |
3 600 |
4 122 |
15 |
|
Change in unearned premiums |
51 |
–197 |
— |
|
Premiums earned |
3 651 |
3 925 |
8 |
|
Net investment income |
161 |
207 |
29 |
|
Net realised investment gains/losses |
128 |
16 |
–88 |
|
Other revenues |
5 |
3 |
–40 |
|
Total revenues |
3 945 |
4 151 |
5 |
|
|
|
|
|
|
Expenses |
|
|
|
|
Claims and claim adjustment expenses |
–3 558 |
–3 241 |
–9 |
|
Acquisition costs |
–554 |
–607 |
10 |
|
Operating expenses |
–759 |
–763 |
1 |
|
Total expenses before interest expenses |
–4 871 |
–4 611 |
–5 |
|
|
|
|
|
|
Income/loss before interest and income tax expense |
–926 |
–460 |
–50 |
|
Interest expenses |
–23 |
–24 |
4 |
|
Income/loss before income tax expense |
–949 |
–484 |
–49 |
|
Income tax expense/benefit |
203 |
75 |
–63 |
|
Net income/loss before attribution of non-controlling interests |
–746 |
–409 |
–45 |
|
Income/loss attributable to non-controlling interests |
5 |
4 |
–20 |
|
Net income/loss attributable to common shareholders |
–741 |
–405 |
–45 |
|
|
|
|
|
|
Claims ratio in % |
97.4 |
82.6 |
|
|
Expense ratio in % |
36 |
34.9 |
|
|
Combined ratio in % |
133.4 |
117.5 |
|
Combined ratio
The combined ratio decreased to 117.5% in 2018 compared to 133.4% in 2017, mainly due to lower large natural catastrophe losses, partially offset by higher large man-made losses. The previous year was particularly impacted by hurricanes Harvey, Irma and Maria in the third quarter of 2017.
Lines of business
The Property combined ratio for 2018 decreased by 56.1 percentage points to 117.9%, driven by lower natural catastrophe losses, partially offset by a high severity and frequency of large man-made losses.
The Casualty combined ratio increased slightly to 125.5% in 2018 compared to 122.0% in 2017. Both periods were impacted by large Liability losses in North America.
The Specialty combined ratio for 2018 increased by 4.9 percentage points to 106.5%, mainly due to higher large loss activity, primarily driven by a major satellite loss and the Ituango dam collapse. The prior-year was impacted by hurricanes Harvey, Irma and Maria.
Investment result
The return on investments was 2.1% for 2018, compared to 3.4% in 2017, reflecting a reduction in the investment result of USD 101 million.
Net investment income increased by USD 41 million to USD 224 million in 2018, benefiting from a higher invested asset base and rising yields.
Net realised losses were USD 24 million compared to net realised gains of USD 118 million in 2017, with the prior-year result benefiting from significant realised gains from sales of equity securities.
Insurance-related derivative results and foreign exchange gains/losses are not included in the investment figures.
Corporate Solutions offers insurance protection against weather perils and other risks, which is accounted for as derivatives. Insurance in derivative form reported net realised gains of USD 30 million in 2018, compared to USD 12 million in 2017.
Shareholdersʼ equity
Common shareholdersʼ equity decreased by USD 0.6 billion to USD 1.8 billion at the end of 2018, driven by the net loss for the period, a change in unrealised losses of USD 82 million and a dividend of USD 50 million paid to the Group. The return on equity was –19.4% in 2018, compared to –32.2% in 2017.
Outlook
In 2018, the commercial insurance market was impacted by large natural catastrophe events and an exceptionally high severity and frequency of large man-made losses in industrial business lines across all geographies. While rates and terms and conditions have improved, commercial risks, particularly in the large corporate segment, remain inadequately priced and the industry continues to be unprofitable overall. Corporate Solutions expects continued market hardening and a reinforced focus on terms and conditions over the next 12 to 18 months.