HAMILTON, Bermuda, July 21, 2004 (PRIMEZONE) -- Alea Group Holdings (Bermuda) Ltd. ("Alea", or "the Group") today provides an update on the current mid year trading conditions prior to entering the close period for the interim results for the half year ended 30 June 2004 that will be published on 21 September 2004.
Positive Outlook for 2004
The strength of the renewals and trading conditions to date, particularly in our key target areas, re-affirms our positive outlook for 2004.
Mid Year Trading Conditions
Conditions have remained strong in all Alea's business units during the first half of 2004.
Alea's renewal portfolio is evenly spread throughout the year with 47% of 2003's expiring premium available for renewal in the first half of the year. Specifically, the vast majority of Alea's European business and a significant proportion of Alea's London business renews in the first half of the year. Alea remains on course to achieve its premium plan for 2004 and, with conditions remaining firm in its chosen markets and with reported claims development in line with expectations, Alea remains confident of achieving pre-tax operating profit targets.
Alea's targeted growth areas (alternative risk, excess and surplus lines, US casualty reinsurance and Europe) have all experienced strong trading conditions. In accordance with its strategy of proactively managing the underwriting cycle, Alea remains overweight in its chosen market segments of the casualty sector where rate improvement continues to be seen, albeit at a slower pace of growth than last year. Just as importantly as rates, terms and conditions remain tight across the board as underwriting discipline holds firm. The more capacity driven property market has seen rate deterioration of between 5-20%, depending on territory and the appetite of the larger property reinsurers. However the property business currently written by Alea remains well above internal hurdle rates of return and terms and conditions have not been relaxed.
Overall Group Gross Premiums Written increased by approximately 30% in the first half of the year in comparison to the same period in 2003.
Premiums written generally take three years to earn through the profit and loss account. These patterns differ by business class and operational unit. However, overall they currently approximate to 40% in year one, 50% in year two and 10% in year three. The strong underwriting year conditions in the first half of 2004 will mostly be recognized in Alea's profit and loss accounts for the years ended 31 December 2004 and 31 December 2005.
Alea London
Gross Premium Written in London grew by 10% excluding Bristol West in the first half of the year.
Alea London's excess and surplus lines portfolio (facilities) continues to progress in line with expectations with rates remaining firm or improving over 2003 in the property and casualty areas, with the latter increasing 5-10% depending on the specific line of business.
Rates on international property treaty business have weakened with an average 10-15% reduction over comparable 2003 figures. The rates do, however, remain well within planned expectations and above hurdle rates of return. In most areas North American property business rates have shown fewer signs of weakening and have remained slightly above planned expectations. In both these areas terms and conditions remain firm demonstrating a reassuring underwriting discipline in the market as a whole.
Within Alea's strategic target markets, US and International casualty, reinsurance lines continue to show rate improvement of an average 10% over 2003 conditions. Gross premium written is marginally ahead of plan.
Alea Alternative Risk - Insurance
Alea's target insurance business in the US is growing rapidly and year-to-date gross premium written was up by 169% over the comparable period in 2003. Rates in the liability lines of business are up 5-10% on 2003 levels and property are up 0-5%.
There is considerable activity in the market with recent acquisitions driving strategic reviews amongst the larger players. As a result, we are seeing increased opportunity flow and, with market conditions remaining attractive, we are confident of meeting our growth plans in this key strategic area.
Alea North America - Reinsurance
For the first half of 2004, ANA recorded a 38% increase in GWP over the similar period in 2003. Growth drivers are high level of renewal retentions and significant volumes of new business. Alea North America remains on plan for the year.
Underwriting conditions in US Casualty remain strong. At the primary level, rate change momentum on the small-to-medium accounts that remain Alea's target market, has remained positive. Primary rate increases vary by class but have averaged a 12% increase over 2003 levels on the business written to date. At the reinsurance level, treaty conditions remain tight in most areas and terms and conditions are mostly as expiring, reflecting the continued underwriting discipline of the market to date this year.
Alea Europe
The majority of Alea Europe's business is written in January and the European team remain on target to exceed their expectations from this region. Gross premium written to date in dollar terms is up by 30% over the full year 2003. Alea Europe's excellent client relationships produced strong results with business written on a direct basis increasing from 45% to 60% of the gross premium written to date.
Underlying primary property rates have generally been flat with reinsurance rates remaining stable to 10% lower in the more capacity driven markets where Alea does not generally compete. There are some signs of further pressure on the most capacity driven catastrophe rates but there is still a high degree of underwriting discipline being shown.
Casualty lines saw improvements over 2003, although these have varied by country with some Eastern European lines, for example, showing marked improvement.
Tax and Investment Strategy
The Group's tax, regulatory structure and investment strategy are aimed to maximise the long-term return to investors by accumulating invested assets in Bermuda and by utilising Bermudan capacity through inter-company quota shares. This is designed to provide a number of benefits including: tax-free investment returns, greater capital flexibility and leverage potential, and long-term reduced average corporate tax rates
There are significant tax benefits from the Group's strategy in this area, although decreases in bond portfolio valuations caused by rising yields have exerted downward pressure on net asset value and have impacted effective tax rates. This is not a real value driver, as the Group follows a conservative investment strategy and a hedged balance sheet approach by matching currency and duration exposure of assets to liabilities. In the longer term, we expect increases in interest rates will enhance investment income as existing maturing bonds and strong new cash flows are invested at higher rates of return.
Comment from Mark Ricciardelli, Group Chief Executive
"The year to date performance has been reassuring and we remain confident that our strategic focus on small to mid market clients in alternative risk, excess and surplus lines, US casualty and Europe is the correct one. In all these areas, rates, terms and conditions remain strong and with reported claims development in line with expectations we are confident of achieving our pre-tax operating profit targets.
In casualty lines we are still seeing rate improvement over 2003 albeit at a slightly slower pace than last year. In the property areas there is continuing evidence of rate decline in the capacity driven accounts, where, generally, we do not compete, but rates remain well above our internal hurdles. We will continue proactively to monitor rate movements and will not hesitate to respond appropriately to maximise returns."
Comment from John Reeve, Group Chairman
"We continue to believe that the Group is exceptionally well positioned to take advantage of current and projected market conditions."
Certain statements in this announcement are or may constitute forward-looking statements. Because such statements are inherently subject to risks and uncertainties, actual results may differ significantly from those expressed or implied by such forward-looking statements. We caution you not to place undue reliance on such forward-looking statements. We do not undertake any obligation (except reporting obligations imposed on us in relation to our listing on the London Stock Exchange) to update such forward-looking statements to reflect events or circumstances occurring after the date hereof.
NOTES FOR EDITORS
Company Overview
Alea is a global reinsurance and specialty insurance company focused on underwriting for profit and return on equity. It has expertise in a wide range of property and casualty reinsurance, insurance, alternative risk and finite risk products and maintains a significant presence in major insurance and reinsurance markets worldwide.
Alea is headquartered in Hamilton, Bermuda and has ongoing operations in the United Kingdom, the United States, Bermuda, Switzerland, Sweden, Australia and Jersey. At 31 March 2004, it had 380 employees.
Alea has its origins in an investment thesis developed in 1997 by KKR 1996 Fund (Overseas) Limited Partnership, its major shareholder: to create a new global reinsurer focused on generating sustainable profitability and growth over the longer term.
The core of this thesis was that underwriting discipline, strong controls, broad capabilities in both reinsurance and select insurance markets, a focus on less volatile lines of business and long-term relationships with small to medium-sized clients would result in sustainable profitability in any market environment.
Alea has acquired or built the talent, local infrastructure, licenses and client relationships to be able to react quickly to attractive return opportunities in the major markets worldwide. It has leveraged this platform to develop a sizeable book of business diversified by class and geography.
Alea had total assets of $3,477 million and equity shareholders' funds of $725 million at 31 December 2003. Gross premiums written were $1,300.2million in the twelve-month period to 31 December 2003.
Alea is publicly traded on the London Stock Exchange under the ticker "ALEA". For more information on Alea, see www.aleagroup.com.
This information is provided by RNS
The company news service from the London Stock Exchange