The FINANCIAL — “We are pleased with the development of our businesses in the first quarter. The Group continues to make good progress toward our 2017 to 2019 targets and remains strongly capitalized after returning around USD 3.8 billion to shareholders year-to-date through the increased dividend and the previously announced anti-dilution measures,” said Group Chief Financial Officer George Quinn. “In P&C we remain focused on profitability, while our Life business continues to perform strongly and the Farmers Exchanges are seeing good momentum in key customer metrics and underlying profitability.”
Gross written premiums in Property & Casualty (P&C) for the first three months of 2018 rose 5% in U.S. dollar terms and declined slightly on a like-for-like basis. Growth in Asia Pacific and Latin America was mainly offset by planned actions focused on profitability in North America. Rates improved particularly in North America which continued the positive momentum seen in the fourth quarter of 2017. Overall the Group saw rate increases of around 2% in the first quarter of 2018.
In EMEA, gross written premiums increased 9% in U.S. dollar terms and declined by 2% on a like-for-like1 basis, with growth in the Switzerland commercial business offset by reductions in Germany and the UK. Gross written premiums for North America were down 5% compared to the prior year period. In line with Group’s strategy, this was mainly driven by planned reductions in less profitable lines. In Asia Pacific, gross written premiums were up 10% on a like-for-like1 basis, reflecting the incremental new business premiums from underwriting the Cover-More travel business in Australia. In Latin America, gross written premiums increased by 14% on a like-for-like basis driven by the retail business in Brazil and Mexico in line with the Group’s strategy.
During the quarter claims related to natural catastrophes have been only slightly above historical first quarter levels.
Life new business annual premium equivalent (APE) volumes increased by 13% on a like-for-like basis during the quarter after adjusting for currency and the disposal of the UK workplace savings business, with growth of 7% on a headline reported basis.
In EMEA, the joint venture with Banco de Sabadell S.A. in Spain together with Italy, Switzerland and the UK were the main contributors to growth, with the latter also benefiting from a single large corporate protection sale. In Asia Pacific all countries contributed to the growth, while North America saw improved volumes of corporate protection from a low base in 2017. In Latin America, continued growth in Brazil was offset by the absence of a large corporate protection sale in Chile in the first quarter of 2017.
The new business margin remained at an attractive level of 25.2% in the quarter. New business value decreased 1% in U.S. dollar terms and on a like-for-like1 basis, with this driven in part by changes in product mix to optimize returns on capital and earnings as well as some minor changes to operating assumptions.
The Farmers Exchanges, which are owned by their policyholders, continued to deliver top-line growth over the quarter. The first quarter saw further improvement in key customer metrics. Retention and Net Promoter Score increased versus the December 2017 levels, while new business and in-force policy count for continuing operations returned to growth. This improvement is expected to continue over the next few quarters.
In the first quarter of 2018, gross written premiums from continuing operations were up 6%, with an agreement with Uber to provide commercial rideshare insurance in two U.S. states contributing just over half of the growth. Growth was also supported by the continued delivery of the Farmers Exchanges expansion in the Eastern U.S., with gross written premiums up 22% in the expansion states during the quarter before inclusion of the Uber rideshare business. As in 2017, top-line growth in continuing operations was partially offset by the run-off of discontinued operations.
Rate and underwriting actions taken to improve profitability in Auto have continued to benefit the combined ratio ex-natural catastrophes, with this continuing to trend down over the first quarter of the year. The improved underwriting performance also contributed to a further increase in the surplus ratio during the quarter to 40.0%, 1.3 percentage points higher than at the end of 2017.
In line with its strategy, the Farmers Exchanges entered into an agreement to sell the renewal rights for a portfolio of business insurance sold through independent agents. This will result in a reduction of approximately USD 200 million of gross written premiums on an annualized basis.
Farmers Management Services (FMS) management fees were stable compared with the prior year period, in line with the development of gross earned premiums within the Farmers Exchanges.
Due to its timing late in the quarter, the Uber agreement had limited impact on the gross earned premiums of the Farmers Exchanges, on which management fees to Farmers Management Services are based. The large scale nature of these policies results in a lower cost of acquisition as well as reduced servicing requirements on the part of FMS. As a result the management fee applied to this business is lower than for the traditional business of the Farmers Exchanges. This will lead to a very minor reduction in the reported managed gross earned premium margin going forward.
Farmers Life new business APE was down 6% year-on-year, while new business value increased 31% driven by a favorable sales mix as well as mortality assumption updates in line with more recent industry data.
As indicated at the time of the full year results, the Farmers Exchanges2 reduced the all lines quota share reinsurance to Farmers Re to 1% effective December 31, 2017.
Capital position
As of March 31, 2018, the Z-ECM ratio is estimated at 133% showing a slight increase compared to December 31, 2017. As of January 1, 2018, the Group’s Swiss Solvency Test (SST) ratio was 216%7.
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