Lloyds' largest underwriter had a catastrophe-filled 2011, but remains attractive.
This morning's news that at least 39 people have died in US tornadoes over the weekend provides a grim reminder of the underlying reality of catastrophe insurance - one of the specialities of Lloyds' largest underwriter, Amlin (LSE: AML), which published its 2011 results today.
A catastrophic year
Last year delivered more than its fair share of natural disasters, with major earthquakes in New Zealand and Japan, severe tornadoes in the US, and large-scale floods in Australia, Denmark and Thailand.
These events made their mark on Amlin's bottom line, resulting in a £193.9m pre-tax loss for the company in 2011.
Net losses from catastrophes totalled £500.8m, relative to an expected total of £170m:
| Catastrophe | Amlin net loss (£m) |
|---|
| New Zealand earthquakes | 239.3 |
| Japanese earthquake | 137.7 |
| Thai floods | 80.1 |
| US tornadoes (Tuscaloosa and Joplin) | 28 |
| Danish cloudburst | 15.7 |
| Total: | 500.8 |
Source: Amlin
'Costa Fortune'
Elsewhere in Amlin's business, its marine division, ACI, continued to generate losses in 2011. However, new management has been brought in and Amlin anticipates that 2012 should see improvements in this area.
Amlin expects a net loss of up to £10m from the Costa Concordia shipwreck, although the industry as a whole is likely to end up paying out at least $500m.
A perfect storm?
Amlin has a history of delivering underwriting profit, rather than relying solely on investment activity to generate returns. This means it usually collects more in premiums than it pays out.
Unfortunately, underwriting losses combined with poor investment returns in 2011. Amlin managed a return of just 0.9% on its £4bn of assets, resulting in investment income falling from £175m (4.0%) in 2010 to just £40.5m in 2011.
Plenty of cash
Luckily, Amlin is very well funded and, even after last year's losses, retains net tangible assets of £1.2bn, equivalent to a per share value of 243p (2010: 313.2p).
For deep-value investors, any fall in Amlin's share price below this value would provide a reliable buy signal. I, for one, would add to my portfolio at that price.
Buying Amlin
Amlin is working hard to manage future catastrophe exposure through greater levels of reinsurance and renewal rates are up an average of 4% to date in 2012.
The company has a history of maintaining dividend payments through thick and thin. This year's 23p payment is the same as last year and equates to a 6.7% yield at current prices.
As I write, Amlin's share price is down by about 5%. If you are seeking long-term growth and a good income from a FTSE 250 company, Amlin could deliver very nicely for you.
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