Allianz reveals £32m December freeze hit and CEO Holmes predicts rate hikes to continue

The comments came as Allianz Holdings, which includes Allianz Insurance and LV, posted a 58.3% drop in operating profit to £132.3m for 2022, but a 4.4% rise in gross written premium to £3.97bn.

The year-on-year drop in operating profit was in part driven by £106m of weather-related costs, net of reinsurance, including from the storms in February, subsidence in the summer heatwave and freezing conditions in December.

Direct Line Group shocked the stock market with a profit warning in January that knocked nearly 25% off its share price. It flagged £90m of claims across home and commercial business from the December freeze citing burst pipes, water tanks and other related damage.

Aviva forecast the same month that the freezing UK weather would only cost it £50m at a group level. Allianz Holdings’ hit from the December freeze will be £32m, the provider confirmed.

“Our December impact will be much lower on a net basis, I suspect, than others due to our reinsurance programme,” Holmes, pictured, told Insurance Age.

“We have an incredibly prudent reinsurance programme in our personal lines business.”

Adding: “Frequency was pretty much in line with where we thought it would be. Severity was higher than we expected and we continue to see that into 2023.”

Inflation effect

The combined operating ratio deteriorated to 99.2% from 93.2% in 2021. The provider did not supply combined operating ratios for commercial and personal lines business, but Holmes confirmed that for home and motor, it was in excess of 100%. This, the provider noted, was partially offset by a reducing COR in the mid-corporate property book and Petplan.

The weather had a severe impact on household, while in motor it was predominantly inflation that shifted the dial, Holmes indicated.

“For damage inflation, we are seeing it in the low to mid 20%,” he said, listing second-hand car values, an increased impact of total loss, and supply chain disruption as key drivers.

One year ago, Holmes had been one of the first to warn the market of the dangers of inflation.

“We saw inflation coming, but our expectation was it would be around 5.3%,” he updated.

The business reported it experienced gross inflation of 9.5%.

“We did predict inflation, but we didn’t predict inflation would be as high as it was. Nor did we predict that the impact of inflation would last as long as it did.”

Factors have included the Russia and Ukraine conflict, rising energy costs, supply chain disruption and wage inflation.

Rate rises

With operating profit down more than 50%, Holmes pointed to the hit to prior-year business and negative development on claims.

“In the current year we have been able to offset that with rate. What you have seen in the second half of 2022 across the industry is that rating actions have accelerated.

“We have called out throughout 2022 that we were surprised that we weren’t seeing more rate coming through, for example, in things like commercial motor,” he observed.

Holmes forecast that the hikes in Q3 and Q4 would continue into 2023.

GWP levels

Despite inflation reaching double-digit levels and rate being pushed, gross written premium was only up by 4.4%.

Asked whether this meant a fall in policy numbers, Holmes acknowledged pulling back in commercial motor, and a reduction in personal lines where “good strong growth in Petplan” came with a reduction in household business.

We don’t chase premium for the sake of it. We chase profitable growth.

“Some of it was expected because we were finishing the transition of the L&G business into Allianz, and there were certain MGA books in that which we expected to exit,” he explained.

“There were some sizeable exits that were planned for.”

And he flagged that there had also been strong growth in commercial property and liability helped by increasing rates.

“We don’t chase premium for the sake of it. We chase profitable growth,” Holmes summed up.

Pushing hard

Looking further into 2023, Holmes said the number one area for “pushing hard” will be underinsurance.

“It is an area brokers and insurers alike need to deal with. Customers need to be aware of the implications and understand what it would mean if they had a claim event that stopped their business operating,” he counselled.

He also forecast that inflation will not come down as quickly as originally thought, and will continue to feed into hardening rate.

“We will continue to push in the ESG space. We don’t allow these one-off impacts to change our strategy,” he stated.

“Our strategy was always to alter the mix in our UK business with more property and liability. It doesn’t mean less motor, I just want the balance to be better between property, liability and commercial motor.”

Innovation is key

Despite the potentially difficult market, Holmes revealed innovation around products and service will be to the fore.

“All of that will be strongly linked to working with our broker partners,” he commented. “Most of our innovation comes from asking them ‘what is it you need and what do your customers need’?”

He predicted positive feedback from brokers as it continues to invest in building and developing closer relationships.

“It is something I am personally passionate about,” he stressed.

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