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Munich Re Raises Profit Guidance For 2015 To At Least €3bn, With €1.1bn Profit In Second Quarter

Munich Re posted a consolidated profit of €1,076m for the second quarter of 2015 (same period last year: €762m); the profit for the first half-year amounted to €1,866m (1,703m). The quarterly result was supported by a below-average random incidence of major losses, and a very good investment result. For the current financial year, Munich Re is now aiming for a profit of at least €3bn (previous forecast: €2.5–3bn).

CEO Nikolaus von Bomhard said about the figures: "With a result of around €1.1bn, Munich Re looks back on a very successful second quarter. Despite a persistently uncertain environment, including ongoing competition in reinsurance, the profitability of our core business remains remarkable. After all, our profit of around €1.9bn in the first half of the year was so high that we are likely to exceed our profit guidance of €2.5–3bn for the year if claims experience remains within normal bounds in the second half of the year. We now expect to achieve an annual profit of at least €3bn." He continued: "In order to make sure we retain our competitiveness and profitability in the future, we will increase our efforts to make the most of the opportunities offered by digitalisation, and to open up new business potential by designing innovative solutions."

Summary of figures for the second quarter
In the second quarter, the operating result of €1,818m was well above the figure for the same quarter last year (€1,137m). The amount posted under "other non-operating result" showed a decrease of €207m to –€432m (–225m), mainly due to foreign-exchange effects. Taxes¬ on income totalled €250m (92m). Despite the dividend payment of over €1.29bn in the second quarter, shareholders' equity was at a level similar to that at the end of 2014; the strong increase in the first quarter, and the steep decline in the second quarter were mainly due to developments in market interest rates.

The annualised return on risk-adjusted capital (RORAC) in the first six months amounted to 13.8%, and the return on overall equity (RoE) totalled 11.7%. Since the Annual General Meeting at the end of April, shares with a volume of around €156m have been repurchased as part of the share buy-back programme announced in March.
Gross premiums written increased in the second quarter by 5.2% to €12.5bn (11.9bn). If exchange rates had remained the same, premium volume would have fallen by 4.7% year on year.

Reinsurance: Result of €842m in second quarter

In reinsurance business, the operating result for the second quarter came to €1,435m (845m). The business field of reinsurance accounted for €842m (629m) of the Group consolidated result for the second quarter. In the period from January to June, reinsurance contributed €1,510m (1,397m) to the consolidated result.

The technical result in life reinsurance of €30m (95m) for the second quarter was lower than expected given a series of unconnected one-off effects. By contrast, claims experience in US mortality business and Australian disability business was in line with projections.

Property-casualty reinsurance accounted for €790m (505m) of the result for the second quarter. The combined ratio for April to June totalled 93.3% (101.4%) of net earned premiums; the figure for the half-year was 92.8% (94.1%). As claims notifications for "basic losses" from prior years remained appreciably below the expected level overall, in the second quarter Munich Re was able to release reserves in the amount of around €135m, corresponding to around 3.1 percentage points of the combined ratio for the second quarter. For the first half-year, Munich Re thus released reserves totalling around €300m, or approximately 3.6% of net earned premiums. Munich Re is also continuing to aim to set the amount of provisions for newly emerging claims at the top end of the estimation range, so that profits from the release of a portion of these reserves are possible at a later stage.

Overall loss expenditure for major losses totalled €207m (617m) in the second quarter, and €462m (656m) for the first six months of the year. Natural catastrophe losses in the second quarter amounted to €21m (291m) and man-made major losses to €186m (326m), representing 0.5% (nat cat losses) and 4.3% (man-made losses) of net earned premiums respectively. Heavy rainfall in northern Chile caused considerable flooding, for which Munich Re anticipates expenditure of €45m. The largest man-made loss in the second quarter was €50m from a fire at a warehouse in South Korea.

Gross premiums written in the reinsurance business field increased by 8.3% year on year to €7.1bn (6.6bn) in the period from April to June. If exchange rates had remained the same, premium volume would have fallen by 5.7%. In the life reinsurance segment, gross premiums written increased in the second quarter by 9.6% to €2,704m (2,467m), while premiums in property-casualty reinsurance showed a total increase of 7.5% to €4,404m (4,097m). If exchange rates had remained the same, premium volume in both reinsurance segments would have declined.

The renewals as at 1 July 2015 involved a volume of treaty business of approximately €2.3bn, mainly from the USA, Australia, Latin America, and global clients. Pressure on prices, terms and conditions remained high, in particular for natural catastrophe covers, which accounted for about 20% of these renewals. The decline amounted to 2.1% (previous year's renewals as at 1 July 2014: –3.6%); this could be the first indication of a stabilisation in prices. Premium volume remained almost constant, as Munich Re was able to take advantage of selective opportunities in individual markets, but gave up some business in other areas due to pricing pressures. Torsten Jeworrek, Member of Munich Re's Board of Management, said: "Thanks to our strict cycle management, our portfolio remains profitable even after the price falls in recent renewal rounds."

ERGO: Result of €219m in second quarter

The operating result for the ERGO field of business from April to June increased to €361m (257m), while the consolidated result for the second quarter climbed to €219m (111m). ERGO generated a result of €318m (264m) for the period from January to June.

The combined ratio in the Property-casualty Germany segment improved in the second quarter to 93.4% (95.3%); it deteriorated in the ERGO International segment to 100.4% (97.5%).

Total premium income across all lines of business decreased by 3.6% in the second quarter and totalled €4,297m (4,458m), while gross premiums written decreased by 2.9% to €3,935m (4,053m) in the same period. In the Life and Health Germany segment, gross premiums decreased by 4.9% to €2,315m (2,434m), and in the Property-casualty Germany segment they were slightly below the previous year at €638m (648m). In the ERGO International segment, gross premiums increased slightly by 1.1% to €982m (971m).

ERGO CEO Torsten Oletzky commented: "Our half-year results were very good, even if they cannot simply be projected for the year as a whole. I am sure that we will easily meet our results guidance for 2015, provided that we continue to implement our rigorous profit-oriented business policy.”

Munich Health: Result of €15m in second quarter

Munich Health’s operating result in the second quarter was €22m (35m); the consolidated result was €15m (22m). Munich Health generated a result of €38m (42m) for the period from January to June.

The combined ratio was 99.8% (98.8%) for April to June, and 100.1% (99.3%) for the first half-year.

Munich Health's gross premiums written showed a year-on-year increase of 14.9% to €1,424m (1,239m) in the second quarter due to positive exchange-rate impacts.

Investments: Investment result of €2.5bn in second quarter

With a carrying amount of €236.2bn, total investments (excluding insurance-related investments) as at 30 June 2015 were almost unchanged from the year-end 2014 figure of €235.8bn.

For the period April to June 2015, the Group's investment result (excluding insurance-related investments) showed a year-on-year improvement of 6.5% to €2.5bn (2.4bn). Changes in the value of derivatives had a negative effect of –€133m for the second quarter, which was significantly less negative than in the first quarter of the year (–€706m). The rise in interest rates in the second quarter had a negative impact on interest-rate hedging instruments, whilst equity-based derivatives increased in value due to changes in share prices. The balance of gains and losses on disposals excluding derivatives was around €810m. The investment result represents an overall annualised return of 4.1%.

Munich Re's equity-backing ratio at 30 June 2015 fell to 4.0% (31 December 2014: 4.3%) including equity-linked derivatives. Fixed-interest securities, loans and short-term fixed-interest investments continued to make up the largest portion of Munich Re's investments with a share of around 88% at market value.

The Group’s asset manager is MEAG, whose assets under management as at 30 June 2015 included not only Group investments, but also segregated and retail funds totalling €14.3bn (13.9bn).

Outlook for 2015: new Group profit guidance of at least €3bn

In the first six months of the year, some reporting segments saw results that varied from forecasts, which also have an impact on the annual results – for example, inherent random fluctuations in the incidence of major losses, or the investment result. Munich Re is amending its forecast as follows with respect to the figures stated in the first quarter report published in May 2015.

In property-casualty reinsurance, Munich Re is aiming for a combined ratio of around 96% of net earned premiums in 2015. The consolidated result in reinsurance for 2015 should be at least €2.5bn (previously: at least €2bn).

ERGO is expected to achieve a combined ratio for property-casualty insurance of 95% (previously 93%) in Germany, and 99% (previously 97%) internationally.

After the first half-year was below expectations for life reinsurance business, Munich Re now anticipates a technical result of around €300–350m. We expect the technical result for future financial years to once again be in the region of €400m.

Munich Re now anticipates a return on investment of around 3.3% (previously: at least 3%).

Munich Re is aiming for a consolidated result of at least €3bn, subject to claims experience with regard to major losses being within normal bounds and to its income statement not being impacted by severe currency or capital market developments, significant changes in fiscal parameters, or other exceptional factors. This means the Group would exceed its previously stated profit range of €2.5–3.0bn.

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Aetna Reports Second-Quarter 2015 Results

Aetna have announced second-quarter 2015 operating earnings (1) of $722.1 million, or $2.05 per share, a per-share increase of 21 percent over the second quarter of 2014. Net income (2) for the second quarter of 2015 was $731.8 million, or $2.08 per share. Net income for the second quarter of 2015 includes $0.03 per share of net benefits.

“Aetna reported strong operating earnings in the second quarter, including another record in quarterly operating revenue,” said Mark T. Bertolini, Aetna chairman and CEO. “Based on these results, we are again raising our guidance on full-year 2015 operating earnings per share to at least $7.40 per share from our previous projection of $7.20 to $7.40 per share.

“Our performance continues to demonstrate the execution of Aetna’s growth strategy and the power of our diversified business portfolio. We believe our proposed acquisition of Humana will further that strategy, delivering both significant value to customers and attractive returns for shareholders,” said Bertolini.

“We are quite pleased with our operating results in the quarter, which continue to be supported by strong revenue growth, cash flow and operating margins,” said Shawn M. Guertin, Aetna executive vice president and CFO. “Our second-quarter total medical benefit ratio improved year over year to 81.1 percent, a very strong result that benefited from continued moderate medical cost trends.

“Aetna's government businesses had another excellent quarter, with outperformance in our Medicare and Medicaid lines more than offsetting the impact on our commercial business of the recent federal calculations on health care reform risk adjustments,” said Guertin.

Total company results

  • Operating earnings (1) were $722.1 million for the second quarter of 2015 compared with $610.0 million for the second quarter of 2014. The 18 percent increase in operating earnings is primarily due to higher underwriting margins in Aetna's Health Care segment, partially offset by an increase in general and administrative expenses.
  • Net income (2) was $731.8 million for the second quarter of 2015 compared with $548.8 million for the second quarter of 2014. Net income in both periods reflects net benefits (charges), which are detailed in the Summary of Results table.
  • Operating revenues (3) were $15.1 billion for the second quarter of 2015 compared with $14.5 billion for the second quarter of 2014. The 4 percent increase in operating revenues is primarily the result of higher Health Care premium yields as well as membership growth in Aetna's Government business partially offset by membership losses in Aetna's middle-market Commercial Insured products. Total revenue was $15.2 billion and $14.5 billion for the second quarters of 2015 and 2014, respectively. Total revenue for the second quarter of 2015 includes approximately $110 million of net litigation-related proceeds.
  • Operating expenses (1) were $2.8 billion for the second quarter of 2015. The operating expense ratio (5) was 18.3 percent and 17.6 percent for the second quarters of 2015 and 2014, respectively. The increase in the operating expense ratio is primarily the result of increased investment spend to support Aetna's growth initiatives that outpaced the increase in operating revenue described above. The total company expense ratio was 18.4 percent and 17.9 percent for the second quarters of 2015 and 2014, respectively.
  • Pretax operating margin (6) was 8.7 percent for the second quarter of 2015 compared with 7.6 percent for the second quarter of 2014. The pretax operating margin increased primarily as a result of higher underwriting margins in Aetna's Government business. The after-tax net income margin was 4.8 percent and 3.8 percent for the second quarters of 2015 and 2014, respectively.
  • Effective tax rate was 41.8 percent for the second quarter of 2015 compared with 40.8 percent for the second quarter of 2014. The increase in the effective tax rate reflects the impact of health care reform, primarily from the 2015 increase in the non-deductible health insurer fee.
  • Share repurchases totaled 0.9 million shares at a cost of $100 million for the second quarter of 2015.

Health Care segment results

Health Care, which provides a full range of insured and self-insured medical, pharmacy, dental and behavioral health products and services, reported:

  • Operating earnings (1) were $708.0 million for the second quarter of 2015 compared with $584.3 million for the second quarter of 2014. Operating earnings increased primarily as a result of higher underwriting margins in Aetna's Government business, partially offset by an increase in general and administrative expenses as described in Operating expenses above.
  • Net income (2) was $714.0 million for the second quarter of 2015 compared with $521.1 million for the second quarter of 2014.
  • Operating revenues (3) were $14.4 billion for the second quarter of 2015 compared with $13.8 billion for the second quarter of 2014. The 5 percent increase is due primarily to higher premium yields as well as membership growth in Aetna's Government business partially offset by membership losses in Aetna's middle-market Commercial Insured products. Total revenues were $14.5 billion and $13.8 billion for the second quarters of 2015 and 2014, respectively. Total revenue for the second quarter of 2015 includes approximately $110 million of net litigation-related proceeds.
  • Sequentially, second-quarter 2015 medical membership remained essentially flat due to growth in Aetna's Commercial ASC products and Government business, substantially offset by a decline in Aetna's Commercial Insured products.
  • Aetna's second-quarter 2015 Commercial MBR increased when compared to the second quarter of 2014 primarily as a result of the impact of programs mandated by health care reform (the "3Rs"), partially offset by improved performance in Aetna's large group business. In the second quarter of 2015, Aetna recorded an additional $252 million of net health care reform risk adjustment payables compared with no amount recorded in the second quarter of 2014. Aetna did not record any health care reform risk corridor receivables at June 30, 2015, or June 30, 2014. In aggregate, the incremental net charges incurred in connection with the 3Rs during the second quarter of 2015 were $177 million, compared with net benefits of $48 million in the second quarter of 2014.
  • Aetna's second-quarter 2015 Government MBR improved over the second quarter of 2014 primarily as a result of actions impacting revenue and medical costs designed to solve for the gap between Medicare premiums and medical costs and other expenses and improved performance in Aetna's Medicaid business as well as increased favorable development of prior-period health care cost estimates in 2015.
  • In the second quarter of 2015, Aetna experienced favorable development of prior-period health care cost estimates in its Commercial, Medicaid and Medicare products, primarily attributable to first-quarter 2015 performance. In addition, in the second quarter of 2015, Aetna experienced additional favorable development of prior-years' health care cost estimates which resulted in contractual premium reductions under certain customer arrangements, including minimum medical loss ratio requirements in certain of Aetna's Government contracts.
  • Prior-years' health care costs payable estimates developed favorably by $699.0 million and $531.9 million during the first half of 2015 and 2014, respectively. This development is reported on a basis consistent with the prior years' development reported in the health care costs payable table in Aetna's annual audited financial statements and does not directly correspond to an increase in 2015 operating results.

Group Insurance segment results

Group Insurance, which includes group life, disability and long-term care products, reported:

  • Operating earnings (1) were $44.8 million for the second quarter of 2015 compared with $60.6 million for the second quarter of 2014, primarily due to lower underwriting margins in Aetna's Life and Long-term Care products as well as lower net investment income.
  • Net income (2) was $49.1 million for the second quarter of 2015 compared with $61.4 million for the second quarter of 2014.
  • Operating revenues (3) were $628.9 million for the second quarter of 2015 compared with $626.4 million for the second quarter of 2014. Total revenues were $635.7 million and $627.7 million for the second quarters of 2015 and 2014, respectively.

Large Case Pensions segment results

Large Case Pensions, which manages a variety of discontinued and other retirement and savings products, primarily for qualified pension plans, reported:

  • Operating earnings (1) were $6.2 million for the second quarter of 2015 compared with $5.4 million for the second quarter of 2014.
  • Net income (2) was $5.6 million for the second quarter of 2015 compared with $6.6 million for the second quarter of 2014.
  • Operating revenues (3) were $90.3 million for the second quarter of 2015 compared with $93.2 million for the second quarter of 2014. Total revenues were $89.4 million and $95.1 million for the second quarters of 2015 and 2014, respectively.

(1) Operating earnings and operating earnings per share exclude from net income attributable to Aetna and operating expenses and operating revenues exclude, as applicable, amortization of other acquired intangible assets, net realized capital gains or losses and other items, if any, that neither relate to the ordinary course of Aetna's business nor reflect Aetna's underlying business performance. Although the excluded items may recur, management believes that operating earnings, operating earnings per share, operating revenues, operating expenses and the operating expense ratio provide a more useful comparison of Aetna's underlying business performance from period to period. Management uses operating earnings to assess business performance and to make decisions regarding Aetna's operations and the allocation of resources among Aetna's businesses. Operating earnings is also the measure reported to the Chief Executive Officer for these purposes. Non-GAAP financial measures Aetna discloses, such as operating earnings, operating earnings per share, operating revenues, operating expenses, pretax operating margin and the operating expense ratio, should not be considered a substitute for, or superior to, financial measures determined or calculated in accordance with U.S. generally accepted accounting principles (“GAAP”).

For the periods covered in this press release, the following items are excluded from operating earnings, operating expenses and operating revenues, as applicable, because Aetna believes they neither relate to the ordinary course of Aetna's business nor reflect Aetna's underlying business performance:

  • Aetna incurred transaction and integration-related costs of $21.4 million ($30.7 million pretax) and $52.1 million ($76.3 million pretax) during the three and six months ended June 30, 2015, respectively, related to the acquisitions of Coventry Health Care, Inc. (“Coventry”), the InterGlobal group (“InterGlobal”) and bSwift LLC ("bswift"). Aetna incurred transaction and integration-related costs of $36.3 million ($55.8 million pretax) and $78.2 million ($199.5 million pretax) during the three and six months ended June 30, 2014, respectively, related to the acquisitions of Coventry and InterGlobal. Transaction costs include advisory, legal and other professional fees which are not deductible for tax purposes and are reflected in Aetna's GAAP Consolidated Statements of Income in general and administrative expenses.
  • In the three months ended June 30, 2015, Aetna received proceeds of $71.3 million ($109.6 million pretax), net of legal costs, in connection with a litigation settlement. These net proceeds were recorded in fees and other revenue in Aetna's GAAP Consolidated Statements of Income.
  • Aetna incurred a loss on the early extinguishment of long-term debt of $59.7 million ($91.9 million pretax) during the three months ended March 31, 2014 related to the redemption of Aetna's 6.0% senior notes due 2016.
  • Aetna recorded a charge of $78.0 million ($120.0 million pretax) during the three months ended December 31, 2012 related to the settlement of purported class action litigation regarding Aetna's payment practices related to out-of-network health care providers. That charge included the estimated cost of legal fees of plaintiffs' counsel and the costs of administering the settlement. During the three months ended March 31, 2014, Aetna exercised its right to terminate the settlement agreement. As a result, Aetna released the reserve established in connection with the settlement agreement, net of amounts due to the settlement administrator, which reduced general and administrative expenses by $67.0 million ($103.0 million pretax) in the three months ended March 31, 2014.
  • Other acquired intangible assets relate to Aetna's acquisition activities and are amortized over their useful lives. However, this amortization does not directly relate to the underwriting or servicing of products for customers and is not directly related to the core performance of Aetna's business operations.
  • Net realized capital gains and losses arise from various types of transactions, primarily in the course of managing a portfolio of assets that support the payment of liabilities. However, these transactions do not directly relate to the underwriting or servicing of products for customers and are not directly related to the core performance of Aetna's business operations.

(2) Net Income (Loss) refers to net income (loss) attributable to Aetna reported in Aetna's GAAP Consolidated Statements of Income. Unless otherwise indicated, all references in this press release to operating earnings, operating earnings per share, net income (loss) and net income per share are based upon net income (loss) attributable to Aetna, which excludes amounts attributable to non-controlling interests.

(3) Operating revenue excludes net realized capital gains and losses as noted in (1) above. 

(4) Projected 2015 operating earnings per share exclude from net income estimated after-tax amortization of other acquired intangible assets of approximately $165 million ($254 million pretax), projected integration-related costs related to the Coventry, InterGlobal, and bswift acquisitions, projected transaction-related costs related to the proposed Humana Inc. ("Humana") acquisition, any future net realized capital gains and losses and other items, if any, that neither relate to the ordinary course of Aetna's business nor reflect Aetna's underlying business performance. After-tax amortization of other acquired intangible assets relates to Aetna's acquisition activities, including Coventry, InterGlobal and bswift. Aetna is not able to project the amount of future net realized capital gains and losses or any such other items (other than estimated after-tax amortization of other acquired intangible assets and projected transaction and integration-related costs related to the Humana, Coventry, InterGlobal and bswift acquisitions) and therefore cannot reconcile projected operating earnings per share to projected net income per share in any period. Projected full-year 2015 operating earnings per share reflect approximately 353 million weighted average diluted shares.

(5) The operating expense ratio excludes net realized capital gains and losses and other items, if any, that are excluded from operating revenues or operating expenses, as noted in (1) above.

(6) In order to provide useful information regarding Aetna's profitability on a basis comparable to others in the industry, without regard to financing decisions, income taxes or amortization of other acquired intangible assets (each of which may vary for reasons not directly related to the performance of the underlying business), Aetna's pretax operating margin is based on operating earnings excluding interest expense and income taxes. Management also uses pretax operating margin to assess Aetna's performance, including performance versus competitors.

(7) Operating revenue and operating expense information is presented before income taxes. Operating earnings information is presented net of income taxes.

(8) Aetna's Corporate Financing segment is not a business segment. It is added to Aetna's business segments to reconcile segment reporting to Aetna's consolidated results. The net loss of the Corporate Financing segment includes interest expense on Aetna's outstanding debt and the financing components of Aetna's pension and other postretirement employee benefit plan expenses (benefits). As described in (1) above, the operating earnings of the Corporate Financing segment exclude other items, if any, that neither relate to the ordinary course of Aetna's business nor reflect Aetna's underlying business performance.

(9) Medicaid membership includes members who are dually-eligible for both Medicare and Medicaid.

(10) Represents members in consumer-directed health plans included in Commercial medical membership.

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CEGA Makes Further Investment In Client- Facing Capabilities

CEGA has further invested in its market-facing capabilities by recruiting three new members for its business development and marketing team.

The move is part of the global assistance and claims provider's on-going growth strategy. It sees Jody Baker (joining from CIGNA) appointed as CEGA's Commercial Director, Neil Matthews (latterly of the Collinson Group) appointed as Business Development Manager and Gaynor Maunder (joining from PwC) appointed as Marketing Manager.

The trio will develop CEGA's existing and new business propositions both within and beyond the UK. This will include extending international partnerships and launching innovative and cost-effective claims, assistance and travel risk management propositions for clients who have customers or employees travelling abroad.

 "The expansion of our business development and marketing team is integral to our on-going commitment to business growth and to adding real value for potential and existing clients," says CEGA's Chief Executive Alistair Hardie. "It is also recognition of the ever-increasing demand for our services, not just from insurers, but also from the standalone corporate and public sectors."

CEGA is one of the leading independent providers of global emergency assistance, risk management and claims management services. It provides services to a blue-chip client base that includes many of the world's leading banks, insurance companies, government departments and other global brands.

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OUT NOW: International Private Medical Insurance Companies and Providers V1.1

Underwriters and providers are represented and Team iPMIM would like to take this opportunity to say a warm thank you to all of the guide sponsors including ALC Health, Cigna Global iPMI, Expatriate Group, GeoBlue, Globality Health, Healthcare International, Integra Global and Wellaway.

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The new directory is also featured in our Medical Broker and Intermediary report, iPolicy.

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iPolicy Issue 4 kicks off with an executive interview with the new Managing Director @ Cigna Global iPMI.

About the iPMI Company Directory

Delivering pertinent company information to worldwide insurance brokers, intermediaries and agents the International Private Medical Insurance Magazine iPMI Provider Network Directory is the definitive global resource featuring international medical insurance underwriters and providers.

Identify, select and source the most appropriate insurance partners that may assist you expand your product portfolio range and coverage. Designed by iPMI providers for iPMI brokers, the directory works hand-in-hand with iPMI Magazine company micro web sites. Follow the interactive links throughout the directory for more company intelligence and content.

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Defensive And Strategic Deals Boost M&A In Insurance

Merger and acquisition (M&A) activity in the insurance industry is rising although the number of deals still remains well below levels seen before the financial crisis, says Swiss Re's latest sigma study M&A in insurance: start of a new wave?

After declining sharply in 2009, overall M&A activity in the insurance sector remained relatively subdued in the ensuing years. In recent months activity has picked up again, while the pipeline of future deals has also increased: total M&A announcements in the second half of 2014 rose to 359 from 295 in the first half, and this momentum continued into 2015. Survey evidence also indicates that sentiment towards M&A is turning as confidence about the economic outlook gradually improves and market participants look to acquisitions or mergers to boost profitability as well as bolster their balance sheets.

Defensive and strategic deals come to the fore
Key themes in insurance M&A transactions include divestments of closed blocks and run-off operations. Such disposals can be an effective way to achieve an early exit from business in run-off so that capital may be redeployed to new or expanded lines of business. There has also been more activity in the specialty re/insurers sector as incumbent firms respond to heightened competitive pressures. The emergence of alternative risk-absorbing capacity from hedge funds, investment banks and pension funds has put downward pressure on prices in some property and casualty lines, prompting some specialist re/insurers in Bermuda and Lloyd’s to combine their operations to take on wider and emerging corporate risks and reduce operating costs.

"What's happening, is a squeezing out of the middle-tier specialist re/insurer," says Kurt Karl, Swiss Re's Chief Economist. " Some firms do not have the scale or the breadth of services to differentiate their offering from more commoditised reinsurance capacity. Going forward, we expect to continue to see a certain shakeout in the sector as companies join together in search of revenue and cost synergies."

Beyond the specialty re/insurance sector, there have also been strategic deals to expand expertise, distribution capabilities and geographical reach. There has been a pick up in M&A activity in the emerging markets, particularly Asia Pacific and Latin America, with advanced country insurers continuing to focus on expansion in high growth markets. Increasingly too, emerging market insurers are eyeing acquisitions in advanced markets as a way to diversify geographically and across business lines.

The intermediaries sector has also experienced increased M&A activity. Brokers in the wholesale segment have been actively pursuing expansion overseas in response to growing demand from large corporates wanting to partner with firms with an international footprint. Consolidation in domestic markets has also accelerated, the motivation for agents and brokers being economies of scale and the ability to provide a full range of analytical services to their clients.

Upturn to remain sector specific
Despite the upswing in M&A activity in insurance, the overall number of transactions today remains well below levels prior to the financial crisis. Globally, there were 489 completed deals in 2014 compared with 674 in 2007. Moreover, the increase in activity is not an industry-wide surge, and is unlikely to become one. The still considerable uncertainty about the global macroeconomic and regulatory outlook makes selecting value-enhancing deals challenging, which will restrain firms' appetite for M&As.

Instead, there will likely be a continuation of recent trends of increased M&A activity in certain segments as firms respond to cyclical and structural changes in the industry. The introduction of regulations such as Solvency II will encourage some insurers to restructure in pursuit of capital efficiencies and/or economies of scale or scope. Similarly, the influx of alternative capital will continue to stimulate deals, especially if financial investors become active sellers as well as buyers. Access to digital distribution technology is another M&A driver that will likely carry increasing weight.

Achieving M&A success is challenging
The track record of M&A success in insurance, as in other industries, is mixed. Empirical analysis of share price developments of insurers involved in an M&A over the past decade suggests positive returns for buyers in the long run but there is a wide variation across transactions.

"Those deals that seem to most consistently create value are ones where companies are from the same country and those that combine firms on different parts of the insurance value chain," says Darren Pain, co-author of the report.  

The task of mitigating operational and business risks to achieve M&A success ultimately rests with the managers of insurance companies. Reinsurance solutions can help strengthen or relieve pressure on insurers' balance sheets both prior to and after a transaction. In reality, however, reinsurance is underutilised as an M&A capital management tool.

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MetLife Announces First Quarter 2015 Results

MetLife reported operating earnings* of $1.6 billion, up 5 percent over the first quarter of 2014, and up 10 percent on a constant currency basis*. On a per share basis, operating earnings were $1.44, up 5 percent over the prior year quarter. Operating earnings in the Americas grew 4 percent on a reported basis and 6 percent on a constant currency basis. Operating earnings in Asia decreased 2 percent on a reported basis, but were up 8 percent on a constant currency basis. Operating earnings in Europe, the Middle East and Africa (EMEA) decreased 1 percent on a reported basis, but increased 35 percent on a constant currency basis.

First quarter 2015 operating earnings included the following item:

  • Unfavorable catastrophe experience partially offset by favorable prior year development, which resulted in a decrease in operating earnings of $16 million, or $0.01 per share, after tax

MetLife’s operating return on equity (ROE), excluding accumulated other comprehensive income (AOCI) other than foreign currency translation adjustments (FCTA)*, was 11.7 percent for the first quarter of 2015 and the company’s tangible operating ROE* was 14.4 percent.

On a GAAP basis, MetLife reported first quarter 2015 net income of $2.1 billion, or $1.87 per share. Net income includes $534 million, after tax, in net derivative gains, reflecting the weakening of foreign currencies against the dollar and lower interest rates. MetLife uses derivatives as part of its broader asset-liability management strategy to hedge certain risks, such as movements in interest rates and foreign currencies. This hedging activity often generates derivative gains or losses and creates fluctuations in net income because the risk being hedged may not have the same GAAP accounting treatment.

Premiums, fees & other revenues* were $12.1 billion, essentially unchanged from the first quarter of 2014 (up 4 percent on a constant currency basis).

Book value, excluding AOCI other than FCTA*, was $50.45 per share, up 6 percent from $47.70 per share at March 31, 2014.

“MetLife had a good first quarter,” said Steven A. Kandarian, chairman, president and chief executive officer of MetLife, Inc. “While the continued strengthening of the U.S. dollar impacted reported earnings, our businesses had solid underlying growth. We are pleased with the success of our strategy to grow capital efficient, protection oriented products. For example, accident and health sales outside of the U.S. increased 24 percent and voluntary product sales in the U.S. grew 57 percent.”

           

FIRST QUARTER 2015 SUMMARY

         
($ in millions, except per share data)     Three months ended March 31
      2015     2014     Change
Premiums, fees & other revenues     $ 12,050     $ 12,031      
Total operating revenues     $ 17,032     $ 17,116      
                         
Operating earnings     $ 1,638     $ 1,562     5 %
Operating earnings per share     $ 1.44     $ 1.37     5 %
                       
Net income     $ 2,128     $ 1,298      
Net income per share     $ 1.87     $ 1.14      
                         
Book value per share, excluding AOCI other than FCTA     $ 50.45     $ 47.70     6 %
Book value per share – tangible common stockholders’ equity     $ 41.32     $ 37.76     9 %
Book value per share     $ 64.37     $ 56.65     14 %

*Information regarding the non-GAAP financial measures included in this news release and the reconciliation of the non-GAAP financial measures to GAAP measures is provided in the Non-GAAP and Other Financial Disclosures discussion below, as well as in the tables that accompany this release and/or the First Quarter 2015 Financial Supplement (which is available on the MetLife Investor Relations Web page at www.metlife.com).

BUSINESS DISCUSSIONS

All comparisons of the results for the first quarter of 2015 in the business discussions that follow are with the first quarter of 2014, unless otherwise noted.

THE AMERICAS

Total operating earnings for the Americas were $1.4 billion, up 4 percent (6 percent on a constant currency basis), driven by underwriting and business growth. Operating return on allocated equity* was 14.1 percent for the first quarter and operating return on allocated tangible equity* was 15.9 percent. Premiums, fees & other revenues for the Americas were $9.2 billion, up 3 percent, and excluding pension closeouts, up 2 percent.

Retail

Operating earnings for Retail were $653 million, up 3 percent, driven by separate account performance. Premiums, fees & other revenues for Retail were $3.2 billion, up 1 percent, due to an increase in life and disability sales.

Group, Voluntary & Worksite Benefits

Operating earnings for Group, Voluntary & Worksite Benefits were $228 million, up 20 percent, driven by favorable underwriting. Premiums, fees & other revenues for Group, Voluntary & Worksite Benefits were $4.4 billion, up 3 percent, due to higher sales and persistency.

Corporate Benefit Funding

Operating earnings for Corporate Benefit Funding were $369 million, up 9 percent, due to favorable underwriting and business growth. Premiums, fees & other revenues for Corporate Benefit Funding were $543 million, up 27 percent, due to pension closeouts and structured settlements.

Latin America

Operating earnings for Latin America were $131 million, down 17 percent and down 3 percent on a constant currency basis, as business growth and underwriting improvement were offset by lower inflation, higher taxes and U.S. Direct expenses. Premiums, fees & other revenues in Latin America were $1.0 billion, essentially unchanged from the prior year quarter, but up 13 percent on a constant currency basis. Total sales for the region increased 11 percent on a constant currency basis, driven by Brazil, Mexico and U.S. Direct.

ASIA

Operating earnings for Asia were $327 million, down 2 percent, but up 8 percent on a constant currency basis, driven by business growth. Operating return on allocated equity was 11.4 percent for the first quarter and operating return on allocated tangible equity was 19.6 percent. Premiums, fees & other revenues in Asia were $2.2 billion, down 6 percent on a reported basis, but up 6 percent on a constant currency basis, driven by business growth and solid persistency in all core markets. Total sales for the region increased 4 percent on a constant currency basis, driven by a 32 percent increase in accident and health sales in Japan, partially offset by a decline in retirement product sales across the region.

EMEA

Operating earnings for EMEA were $70 million, down 1 percent, but up 35 percent on a constant currency basis, driven by business growth, favorable underwriting and lower expenses. Operating return on allocated equity was 8.4 percent for the first quarter and operating return on allocated tangible equity was 15.4 percent. Premiums, fees & other revenues were $620 million, down 14 percent, but up 2 percent on a constant currency basis. Total sales for the region increased 14 percent on a constant currency basis, due to strong growth in employee benefit and accident and health sales.

INVESTMENTS

Net investment income was $5.0 billion, down 2 percent. Variable investment income was $371 million ($241 million, after tax and deferred acquisition costs (DAC)), compared with $429 million ($274 million, after tax and DAC) in the first quarter of 2014.

Changes in foreign currencies and long-term interest rates contributed to derivative net gains of $394 million, after tax and other adjustments. Derivative net gains in the first quarter of 2014 were $78 million, after tax and other adjustments.

CORPORATE & OTHER

Corporate & Other reported an operating loss of $140 million, compared to an operating loss of $166 million in the first quarter of 2014.

Conference Call

MetLife will hold its first quarter 2015 earnings conference call and audio webcast on Thursday, May 7, 2015, from 8-9 a.m. EDT. The conference call will be available live via telephone and the Internet. To listen via telephone, dial 800-230-1074 (U.S.) or 612-234-9959 (outside the U.S.). To listen to the conference call via the Internet, visit www.metlife.com through a link on the Investor Relations page. Those who want to listen to the call via telephone or the Internet should dial in or go to the website at least 15 minutes prior to the call to register, and/or download and install any necessary audio software.

The conference call will be available for replay via telephone and the Internet beginning at 10 a.m. EDT on Thursday, May 7, 2015, until Thursday, May 14, 2015, at 11:59 p.m. EDT. To listen to a replay of the conference call via telephone, dial 800-475-6701 (U.S.) or 320-365-3844 (outside the U.S.). The access code for the replay is 344932. To access the replay of the conference call over the Internet, visit the above-mentioned website.

A brief video of CFO John Hele discussing First Quarter 2015 results can be viewed by visiting the Investor Relations page of www.metlife.com.

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Swiss Re Capital Markets Underwrites Transaction For AXA Global Life

Swiss Re Capital Markets has successfully led the issuance of EUR 285 million of insurance-linked securities by Benu Capital Limited ("Benu") on behalf of AXA Global Life, a wholly-owned subsidiary of AXA S.A. The securities cover excess mortality events in France, Japan and the United States. It is the largest excess mortality issuance since 2007.

Swiss Re Capital Markets underwrote the transaction which covers excess mortality events via two classes of Principal At-Risk Variable Rate Notes issued by Benu Capital Limited. Benu Capital Limited (Benu) is an Irish private company incorporated with limited liability. The EUR 135 million Class A notes and the EUR 150 million Class B notes have a five-year risk period starting January 1, 2015.

The proceeds of the Notes each collateralise a counterparty contract with AXA Global Life, providing protection against excess mortality in France, Japan and the U.S. via country age and gender weighted population mortality indices.

Jean-Louis Monnier, Head of ILS Europe at Swiss Re Capital Markets, comments: "We are pleased to provide continued support to AXA Group's strategy in accessing capital markets. This transaction is the largest excess mortality issuance since 2007 and breaks new grounds in terms of structure and risk. AXA Global Life and Swiss Re jointly developed an innovative trigger which more flexibly captures mortality events occurring in any one year or across two calendar years. Moreover, the Class B expands the boundaries of the ILS excess mortality market to higher loss probabilities." 

The transaction utilises a putable note, issued by the European Bank for Reconstruction and Development and underwritten by Swiss Re Capital Markets, as collateral for each Class.

This placement is the sixth ILS transaction sponsored by an AXA Group subsidiary and the second covering excess mortality since the 2006 USD 450 million Osiris issuance.

Swiss Re Capital Markets acted as lead structuring agent and joint bookrunner.

Standard & Poor's has published a rating of BB+ (sf) for the Class A notes and BB (sf) for the Class B notes.

The Benu notes were sold pursuant to Rule 144A of the U.S. Securities Act of 1933, as amended (the “Securities Act”) and have not been registered under the Securities Act or any state securities laws; they may not be offered or sold in the United States except pursuant to an exemption from, or in a transaction not subject, to the registration requirements of the Securities Act and applicable state securities laws.

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Swiss Re Delivers 17% Rise In First-Quarter 2015 Net Income To USD 1.4 Billion; Strong Underwriting And Investment Results

Swiss Re reported a strong Group net income of USD 1.4 billion for the first quarter of 2015. Property & Casualty Reinsurance again led the positive contributions from all Business Units. Life & Health Reinsurance net income increased to USD 277 million and the segment is on track to meet its return on equity target for the year. Corporate Solutions continued to generate profitable growth with a net income of USD 167 million. Admin Re® delivered excellent net income growth and gross cash generation in line with expectations. Despite the ongoing challenges from further declining interest rates and market uncertainty, Swiss Re delivered a strong return on investments of 3.9%. Swiss Re is on track to reach its 2011-2015 financial targets by the end of this year.

Michel M. Liès, Swiss Re's Group Chief Executive Officer, says: "The current market and interest rate environment continues to be very challenging. For that reason, I am all the more pleased to say that we have been able to further grow our business profitably and achieve strong results thanks to our client-centred, differentiated approach and diversified business model. In addition, the result shows our ability to manage our risk portfolios to better mitigate challenges and seize market opportunities."

Strong Group net income and investment result
Swiss Re's Group net income of USD 1.4 billion in the first quarter of 2015 was 17% higher than the USD 1.2 billion reported for Q1 2014. Premiums earned and fee income of USD 7.6 billion for the Group was in line with the prior-year quarter. Measured at constant foreign exchange rates, premiums earned and fee income increased by 7%.

The investment result was strong at USD 1.1 billion (vs USD 1.1 billion in Q1 2014). The annualised return on investments increased to 3.9% in the first quarter of 2015 (vs 3.7%).

The Group's Swiss Solvency Test (SST) ratio was 223% as reflected in the submission to FINMA at the end of April 2015, reaffirming the Group's very strong capital position.

David Cole, Swiss Re's Group Chief Financial Officer, says: "The first quarter has seen all Business Units deliver a very good start to the year. We're especially pleased that our Life & Health business is on track to meet our profitability target. We've also been able to achieve a strong investment result despite ongoing low interest rates amid an environment of financial repression."

P&C Re reported net income of USD 808 million
In the first quarter of 2015, P&C Re reported net income of USD 808 million (vs USD 990 million in Q1 2014). The result benefited from benign natural catastrophe experience and a good underwriting result. These were offset by price softening and less positive reserve developments than in the prior-year period.

Premiums earned during the first quarter decreased slightly to USD 3.77 billion compared to the USD 3.81 billion in the first quarter of 2014, mainly due to foreign exchange translations. If measured at constant foreign exchange rates, premiums would have increased by 6%. This underlying increase was driven by further growth in the casualty business, particularly in the US and EMEA regions.

The P&C Re combined ratio during the first three months of the year was 84.4% (vs 79.2%), benefiting from a lower than expected level of natural catastrophe losses and reserve releases.

L&H Re net income of USD 277 million
L&H Re reported net income of USD 277 million (vs USD 64 million in Q1 2014) and ROE was 17.2%. The result benefited from realised gains and positive foreign exchange developments. Excluding these items, and on an equity base as at 30 June 2013, ROE was 11.6%. The segment is on track to reach its ROE target of 10%-12% by the end of 2015.

Premiums earned and fee income was steady at USD 2.7 billion. Premiums were higher in all markets, driven by new business in Asia and the US. At constant foreign exchange rates, underlying premiums grew by 9%. The operating margin for the first three months was 9.6% (vs 10.1%).

Corporate Solutions reported a strong net income of USD 167 million, ROE of 29.0%
Corporate Solutions' net income was USD 167 million (vs USD 80 million in Q1 2014), reflecting a continued strong business performance across a diversified portfolio. The result was also supported by the absence of any large natural catastrophe events during the first quarter.

Premiums earned grew 6% to USD 882 million (vs USD 830 million). At constant foreign exchange rates, the underlying premium growth was 9% compared to the prior-year period. All regions contributed to the increase, with the highest growth seen in Latin America and Europe. The overall pace of growth slowed due to a challenging market environment.

The Business Unit's combined ratio was 87.8% for the quarter (vs 95.2% in the prior-year period), driven by lower losses in property and speciality lines.

As part of its High Growth Markets initiative, Corporate Solutions has obtained a license to operate in South Africa, a further step to expand its footprint in these markets.

Admin Re® net income of USD 206 million; gross cash generation of USD 52 million
Admin Re® delivered a net income of USD 206 million in the first quarter of 2015 (vs USD 48 million in Q1 2014). The increase was due to higher realised gains from asset sales, favourable UK linked market performance and positive tax effects in the UK.

Gross cash generation was USD 52 million for the quarter (vs USD 202 million). The comparatively higher 2014 figure resulted from a one-off impact arising from the finalisation of the UK 2013 statutory result.

On 1 April 2015, the sale of the US subsidiary Aurora National Life Assurance Company (Aurora) to Reinsurance Group of America, Incorporated (RGA) was successfully completed at previously announced terms.

Admin Re® continues to execute on its strategic focus on the UK, where the Business Unit is strongly positioned to seek further new business opportunities and deliver on its ambitious dividend and gross cash generation objectives.

April renewals show growth with attractive price quality
The April treaty renewals saw Swiss Re increase the volume of renewed business by 7%, with the majority of the growth stemming from High Growth Markets. The price quality overall remains attractive despite further softening in property catastrophe rates.

Swiss Re on track to reach its 2011—2015 financial targets
Group return on equity was 16.1% in the quarter and earnings per share were USD 4.21 (vs USD 3.58 in Q1 2014).

Michel M. Liès, Swiss Re's Group Chief Executive Officer, says: "We have nine months until the end of our financial target period 2011-2015 and we are on track to deliver on the commitments we made to our shareholders. Despite a challenging overall environment, the insurance market offers ample opportunities and we remain well placed to address the significant levels of underinsurance in the world today. In addition, our data shows that there were more natural catastrophes in 2014 than in any other year on our records - yet, over two-thirds of the world's assets do not yet have any financial protection from these events. We remain firm in our commitment to help our insurance clients to meet this challenge in a profitable and sustainable manner."

Details of first-quarter performance (2015 vs 2014)

 

 

Q1 2015 

Q1 2014 

P&C Reinsurance

Premiums earned
(USD millions)

3 767

3 813

 

Net income (USD millions)

808

990

 

Combined ratio (%)

84.4

79.2

 

Return on investments (%)

4.2

3.6

 

Return on equity (%)

22.7

29.5

L&H Reinsurance

Premiums earned and fee income (USD millions)

2 692

2 672

 

Net income (USD millions)

277

64

 

Operating margin (%)

9.6

10.1

 

Return on investments (%)

3.4

2.8

 

Return on equity (%)

17.2

4.4

Corporate Solutions

Premiums earned
(USD millions)

882

830

 

Net income (USD millions)

167

80

 

Combined ratio (%)

87.8

95.2

 

Return on investments (%)

3.4

3.7

 

Return on equity (%)

29.0

12.0

Admin Re®

Premiums earned and fee income (USD millions)

221

236

 

Net income (USD millions)

206

48

 

Return on investments (%)

5.2

4.9

 

Return on equity (%)

12.7

3.2

Consolidated Group (Total)[1]

Premiums earned and fee income (USD millions)

7 562

7 551

 

Net income (USD millions)

1440

1 226

 

Earnings per share (USD)

4.21

3.58

 

Return on investments (%)

3.9

3.7

 

Return on equity (%)

16.1

14.9


[1] Also reflects Group Items, including Principal Investments

 

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Allied World Reports an 88.1% Combined Ratio and 13.1% Annualized Net Income Return on Average Shareholders' Equity for the First Quarter 2015

Allied World Assurance Company Holdings, AG (NYSE:AWH) have reported net income of $124.4 million, or $1.27 per diluted share, for the first quarter of 2015 compared to net income of $177.0 million, or $1.74 per diluted share, for the first quarter of 2014.

The company reported operating income of $91.7 million, or $0.93 per diluted share, for the first quarter of 2015, compared to operating income of $129.9 million, or $1.28 per diluted share, for the first quarter of 2014.

President and Chief Executive Officer Scott Carmilani commented, "Allied World is off to a strong start in 2015. Our North American Insurance segment continues to gain scale and see attractive rate increases. We are pleased to have completed our acquisitions of the RSA Hong Kong and Singapore operations and are looking forward to completing the combination of our platforms as we continue to grow our Global Markets Insurance segment."

First Quarter Operating Results

  • Gross premiums written were $880.6 million, a 2.3% decrease compared to $901.4 million in the first quarter of 2014. This was driven by a decline in the Reinsurance segment, partially offset by growth in both the North American Insurance and Global Markets Insurance segments.
    • The North American Insurance segment grew by 10.1% led by growth across casualty lines, including Defense Base Act, offset in part by a continued decrease in healthcare insurance.
    • The Global Markets Insurance segment grew by 11.9% on a constant dollar basis and 3.8% on an as reported basis, driven by new lines of business, including onshore construction and marine liability, as well as growth across existing lines including general casualty and professional liability.
    • The Reinsurance segment decreased by 11.6% driven largely by the non-renewal of business, including certain property and crop treaties.
  • Net premiums earned were $568.5 million, a 7.2% increase compared to $530.3 million in the first quarter of 2014 as the company retained more premium on a net basis.
  • Underwriting income was $67.5 million compared to $106.9 million in the first quarter of 2014.
  • The company did not experience any reportable catastrophe losses for the first quarter of 2015 or the comparable quarter last year, but did experience attritional property and aviation losses.
  • The combined ratio was 88.1% compared to 79.9% in the first quarter of 2014.
  • The loss and loss expense ratio was 57.2% in the first quarter of 2015 compared to 51.9% in the prior year quarter. During the first quarter of 2015, the company recorded net favorable reserve development on prior loss years of $63.6 million, a benefit of 11.2 percentage points to the loss and loss expense ratio, compared to $48.9 million a year ago, a benefit of 9.2 percentage points.
  • The company's expense ratio was 30.9% for the first quarter of 2015 compared to 28.0% for the first quarter of 2014. The increase was largely driven by the impact of a higher stock price on compensation expense.
  • Foreign exchange losses were $9.9 million for the first quarter of 2015 compared to $0.1 million for the first quarter of 2014, largely driven by hedges the company placed on the British pound sterling purchase price of the RSA acquisitions as well as strengthening of the U.S. dollar against other currencies.

Investment Results

  • The total financial statement return on the company's investment portfolio for the three months ended March 31, 2015 was 1.0% compared to 1.2% for the three months ended March 31, 2014.
  • Net investment income decreased 6.4% in the quarter compared to the prior year quarter, driven by lower income derived from equity method investments owned through Allied World Financial Services.
  • See the table below for the components of the investment returns:
           
(Expressed in millions of U.S. dollars, except percentages)       Three Months Ended March 31,
        2015

 

2014

Net investment income       $44.6   $47.6
Net realized investment gains       45.0   54.2
Total financial statement portfolio return       $89.6   $101.8
             
Average invested assets       $8,615.0   $8,498.0
Financial statement portfolio return       1.0 %   1.2%
             
    Note: Net investment income, realized gains and unrealized gains are disclosed on a pre-tax basis.

Shareholders' Equity

  • As of March 31, 2015, the company’s total shareholders' equity grew to $3,829.1 million, compared to $3,778.3 million as of December 31, 2014.
  • As of March 31, 2015, diluted book value per share was $38.99, an increase of 1.9% compared to $38.27 as of December 31, 2014.
  • Annualized net income return on average shareholders' equity was 13.1% for the quarter, compared to 19.8% for the comparable quarter last year.

Capital Management

  • During the first quarter of 2015, the company repurchased 1,271,213 of its common shares through its open market share repurchase program at an average price of $40.08 per share and an aggregate cost of $50.9 million.
  • In May 2014, the company’s shareholders approved four quarterly dividends equal to $0.225 per share. The fourth and last dividend was paid on April 2, 2015. Pending shareholder approval at the Annual Shareholder Meeting scheduled for April 30, 2015, the annual dividend payment will increase 15% to $1.04 per share from $0.90 per share.

Supplementary Information

Allied World has provided both a Financial Supplement and an Investment Supplement as of March 31, 2015. This information is available in the "Investor Relations" section of the company's website at www.awac.com.

Conference Call

Allied World will host a conference call on Thursday, April 23, 2015 at 9:00 a.m. (Eastern Time) to discuss the results for the first quarter ended March 31, 2015. The public may access a live webcast of the conference call at the "Investor Relations" section of the company's website at www.awac.com. In addition, the conference call can be accessed by dialing (888) 317-6003 (U.S. callers) or (412) 317-6061 (international callers) and entering the passcode 2239296 approximately ten minutes prior to the call.

A replay of the call will be available through Friday, May 8, 2015 by dialing (877) 344-7529 (U.S. callers and Canada) or (412) 317-0088 (international callers) and entering the passcode 10062718. In addition, the webcast will also remain available online through Friday, May 8, 2015 at www.awac.com.

Non-GAAP Financial Measures

In presenting the company's results, management has included and discussed in this press release certain non-generally accepted accounting principles ("non-GAAP") financial measures within the meaning of Regulation G as promulgated by the U.S. Securities and Exchange Commission. Management believes that these non-GAAP measures, which may be defined differently by other companies, better explain the company's results of operations in a manner that allows for a more complete understanding of the underlying trends in the company's business. However, these measures should not be viewed as a substitute for those determined in accordance with generally accepted accounting principles ("U.S. GAAP").

"Operating income" is an internal performance measure used in the management of the company's operations and represents after-tax operational results excluding, as applicable, net realized investment gains or losses, net foreign exchange gain or loss, and other non-recurring items. The company excludes net realized investment gains or losses, net foreign exchange gain or loss, and other non-recurring items from the calculation of operating income because these amounts are heavily influenced by and fluctuate in part according to the availability of market opportunities and other factors. In addition to presenting net income determined in accordance with U.S. GAAP, the company believes that showing operating income enables investors, analysts, rating agencies and other users of the company's financial information to more easily analyze our results of operations and underlying business performance. Operating income should not be viewed as a substitute for U.S. GAAP net income.

The company has included "diluted book value per share" because it takes into account the effect of dilutive securities; therefore, the company believes it is an important measure of calculating shareholder returns.

"Annualized net income return on average shareholders' equity" ("ROAE") is calculated using average shareholders' equity, excluding the average after tax unrealized gains (or losses) on investments. Unrealized gains (losses) on investments are primarily the result of interest rate and credit spread movements and the resultant impact on fixed income securities. Such gains (losses) are not related to management actions or operational performance, nor are they likely to be realized. Therefore, the company believes that excluding these unrealized gains (losses) provides a more consistent and useful measurement of operating performance, which supplements U.S. GAAP information. In calculating ROAE, the net income (loss) available to shareholders for the period is multiplied by the number of such periods in a calendar year in order to arrive at annualized net income (loss) available to shareholders. The company presents ROAE as a measure that is commonly recognized as a standard of performance by investors, analysts, rating agencies and other users of its financial information.

"Annualized operating return on average shareholders' equity" is calculated using operating income (as defined above and annualized in the manner described for net income (loss) available to shareholders under ROAE above) and average shareholders' equity, excluding the average after tax unrealized gains (losses) on investments. Unrealized gains (losses) are excluded from equity for the reasons outlined in the annualized net income return on average shareholders' equity explanation above.

Reconciliations of these financial measures to their most directly comparable U.S. GAAP measures are included in the attached tables.

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UnitedHealth Group Reports First Quarter Results

UnitedHealth Group (NYSE: UNH) reported first quarter results, highlighted by accelerating growth, consistent execution and strong operating performance in businesses across the Company.

“We are working to create more effective and more modern approaches to accessing and delivering health care. We are gratified with the market response to our efforts, providing us opportunities to serve more people, in more ways,” said Stephen J. Hemsley, chief executive officer of UnitedHealth Group.

The Company expects 2015 revenues of approximately $143 billion, an increase of $2 billion from the previous outlook, due to stronger business growth in the first quarter. Earnings are now expected to be in a range of $6.15 to $6.30 per share, an increase from the prior outlook of $6.00 to $6.25 per share, despite absorbing approximately $0.10 per share from the proposed combination with Catamaran Corporation, including transaction costs and the effect of moderated share repurchase activity. Management expects the combination to contribute $0.30 per share to UnitedHealth Group’s 2016 earnings. Reflecting the increased outlook for revenues and earnings, the Company is raising its projection for 2015 cash flows from operations to a range of $8.2 billion to $8.4 billion.

UnitedHealth Group’s first quarter 2015 revenues of $35.8 billion grew 13 percent or more than $4 billion yearover-year. Revenue growth was broad-based, with both UnitedHealthcare and Optum revenues growing by double digit percentages.

• First quarter earnings from operations were $2.6 billion and net earnings of $1.46 per share increased 33 percent year-over-year. With strengthened overall operating performance compared to the first quarter of 2014, the net margin of 4.0 percent expanded 50 basis points year-over-year.

• First quarter 2015 cash flows from operations of $2.3 billion were 1.6 times net earnings and grew 61 percent year-over-year due to growth in risk-based products and the expansion in overall earnings.

• The consolidated medical care ratio decreased 140 basis points year-over-year to 81.1 percent in the first quarter of 2015. Prior year medical reserve development was $140 million, compared to $220 million in the first quarter of 2014.

• The first quarter 2015 operating cost ratio of 16.6 percent increased 20 basis points year-over-year due to higher growth in services businesses.

• The first quarter 2015 tax rate of 43.3 percent increased 130 basis points year-over-year due to higher levels of nondeductible ACA fees. • First quarter 2015 days sales outstanding of 13 days increased 1 day year-over-year, due to higher growth in government programs. Days claims payable was flat year-over-year at 47 days.

• The Company’s balance sheet remained strong, with a debt to total capital ratio of 36.6 percent at March 31, 2015. UnitedHealth Group repurchased $900 million in stock in the first quarter, acquiring more than 8 million shares, and grew dividend payments to shareholders by 29 percent year-over-year to $357 million.

UnitedHealthcare provides health care benefits, serving individuals and employers ranging from sole proprietorships to large, multi-site and national and international organizations; delivers health and well-being benefits to Medicare beneficiaries and retirees; manages health care benefit programs on behalf of state Medicaid and community programs; and serves the nation’s military service members, retirees and their families through the TRICARE program.

UnitedHealthcare’s first quarter 2015 revenues of $32.6 billion grew $3.4 billion or 12 percent year-over-year. The number of people served across the U.S. benefits markets grew 1.6 million year-over-year, all organically, with balanced growth across commercial, Medicare and Medicaid offerings. In the first quarter of 2015, UnitedHealthcare grew to serve more than 1 million additional people domestically.

• First quarter 2015 earnings from operations for UnitedHealthcare increased $494 million over the first quarter of 2014. Improved performance in managing health care costs across all businesses and improved operational performance combined to advance UnitedHealthcare’s first quarter operating margin to 5.8 percent. Page 4 of 7 UnitedHealthcare Employer & Individual

• UnitedHealthcare Employer & Individual served 680,000 more people in the first quarter and 320,000 more people year-over-year. First quarter growth was led by the positive market response to the Company’s individual public exchange products and favorable annual renewal activity and new business awards serving employer customers.

• First quarter revenues of $11.4 billion grew 4 percent year-over-year reflecting growth in the number of people served, price increases for medical cost trends and a continuing market shift to lower price point products, including public exchange offerings. UnitedHealthcare Medicare & Retirement

• First quarter 2015 UnitedHealthcare Medicare & Retirement revenues of $12.8 billion grew $1.3 billion or 11 percent year-over-year due to consistent growth in services to seniors. - In Medicare Advantage, UnitedHealthcare grew to serve 220,000 more seniors, a 7 percent year-overyear increase, including 200,000 more in first quarter 2015. - Medicare Supplement products grew 8 percent to serve 305,000 more people year-over-year, including 180,000 in the first quarter. - UnitedHealthcare’s stand-alone Medicare Part D prescription drug plan participation remained largely unchanged, contracting year-over-year by 40,000 people. UnitedHealthcare Community & State

• First quarter 2015 UnitedHealthcare Community & State revenues of $6.9 billion grew $1.7 billion or 33 percent year-over-year, due to strong overall growth and an increasing mix of higher acuity members, such as those served through long-term care programs.

• In the past year UnitedHealthcare grew its Medicaid services by 750,000 people or 17 percent to serve more than 5 million people. Strong first quarter growth of 160,000 people was fully offset by a previously scheduled membership reduction of 175,000 people in one market, where an additional offering was introduced by the state. UnitedHealthcare Global

• UnitedHealthcare Global’s first quarter 2015 revenues of $1.5 billion decreased 7 percent or $107 million year-over-year. Using first quarter 2015 exchange rates for both periods, revenues grew 12 percent yearover-year. The number of people served declined 495,000 year-over-year as a result of strengthened pricing and underwriting disciplines in response to regulatory actions causing use of the health care system to rise.

Optum is a health services business serving the broad health care marketplace, including payers, care providers, employers, governments, life sciences companies and consumers. Using advanced data analytics and technology, Optum’s people help improve overall health system performance: optimizing care quality, reducing costs and improving the consumer experience and care provider performance.

Optum’s revenues for the first quarter of 2015 grew 15 percent or $1.6 billion year-over-year to $12.8 billion as each reporting segment advanced revenues by a double-digit percentage. Optum’s first quarter 2015 earnings from operations of $742 million grew 14 percent or $92 million year-over-year. Absent $42 million in acquisition costs from the proposed Catamaran combination, first quarter operating earnings growth would have exceeded 20 percent and the operating margin of 5.8 percent would have been 6.1 percent, up 30 basis points year-over-year.

OptumHealth revenues of $3.3 billion grew 27 percent year-over-year due to growth in the number of patients served across its OptumCare health care delivery businesses, as well as business expansion in population health management services for third party payers. - OptumInsight revenues grew to $1.4 billion in the first quarter of 2015, advancing 11 percent year-overyear, driven by expansion and growth in care provider revenue management services. OptumInsight’s quarter end revenue backlog was $9.1 billion, with growth in external backlog accelerating to 24 percent year-over-year.

OptumRx revenues grew 11 percent year-over-year as first quarter script volumes increased 5 percent to nearly 150 million adjusted scripts. Management expects the Catamaran combination to enhance OptumRx’s offerings and generate substantial value for clients and individuals.

 

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