Annual Report Annual Report 2013 2013 - allianz.co.uk

78 Pages·2014·2.23 MB·English

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Contents
01 At a Glance
StrategicReview
02 Chief Executive’s Report
05 Group Strategic Report
Governance
15 Directors and Officers
16 Management Board
17 Corporate Governance
Report and Accounts
The cover image was used as part of the 2013 Allianz SE Group
Brand campaign "Insurance from A-Z". From insuring the first 22 Report of the Directors
production car over 100 years ago, the Group now covers over 23 Statement of Directors’ Responsibilities
70 million cars worldwide today. 24 Report of the Auditors
25 Financial Statements
31 Notes to the Financial Statements
73 Group Organisation
Our mission
To be the outstandingcompetitor in our chosen markets by delivering:
• products and services that our clients recommend
• a great company to work for
• the best combination of profit and growth
01 AtaGlance 1
Financial Highlights
Restated
2013 2012
£m £m
General insurance contracts premium revenue (Note 3)
Grosswrittenpremiums 1,931.3 1,879.8
Netwrittenpremiums 1,820.5 1,773.6
Results
Totalrevenue 1,925.1 1,871.3
Total claims and expenses (1,737.8) (1,692.3)
Profitbeforetax 187.3 179.0
Income tax charge (40.1) (47.0)
Profit after tax 147.2 132.0
Total equity 991.5 994.1
NetWrittenPremiums
Commercial Retail
£1,000m
934
906
886
868
£800m
£600m
£400m
£200m
£0m 2013 2012 2013 2012
2 AnnualReport2013
Strategic Review
Chief Executive’s Report
2013 saw continued strong performance with operating Profit growing by 5.6% despite
the persistence of difficult economic conditions and a very competitive insurance market.
less profitable than in 2012 and also saw a small
decrease in premium volumes. The Liability accounts
continued to make losses in 2013 but at a much
reduced level from 2012. After two years of suffering
increases in the reserve for prior year claims, 2013
showed a decrease on prior year, and the strong action
taken over the last 3 years to eliminate poor performing
business and raise premium rates is having very
noticeable effects. Despite the floods seen towards the
end of 2013, the weather for the year as a whole was
benign and helped the Property business make a good
underwriting profit after a small loss in 2012 in the face
of a much more difficult year. Commission rates to
intermediaries reduced over the year, but this was
mainly the result of changes in business mix rather
than an underlying fall in broker remuneration rates.
Rate increases in excess of claims inflation were
achieved again in 2013, with increases on liability
remaining ahead of other areas, but in general there is
little sign of the significant hardening needed in many
lines for the market to return to strong profitability in a
low interest rate environment.
Operating Profit(1)in 2013 was £170.5m, an increase of
5.6% from 2012 despite a decrease in prior year reserve The results from Allianz Retail varied significantly by
releases, reflecting the improved 2013 trading account in 2013. The broker motor account again
conditions, particularly in commercial lines. This was made a strong profit in 2013, although a bit down from
£11.6m ahead of Plan. Allianz Commercial produced a 2012. Premium volumes have been reduced
substantial increase in profit delivery through sustained significantly to achieve this result due to the weakness
rate strengthening and this mitigated the fall in profit of the rating environment: the market has anticipated
from Allianz Retail which arose largely through the significant benefits from the changes to the legal
initial investments needed to support both new environment in respect of claims costs, although we
corporate partner deals and the growth of our direct believe that the ultimate effects are still uncertain and
business. Profit after tax was £147.2m, against will take some time to become clear. The direct motor
£132.0m in 2012. Gross written premium grew by account made a loss as a result of the costs of building
2.7%, a pleasing result in the context of the economic up the business and this is expected to continue next
situation and our determination to maintain year as we build a stronger position in this key retail
underwriting standards. market. The broker household account returned to
profit in 2013 which was a benign year for weather
The main accounts of Allianz Commercial continued to until the fourth quarter. Direct household business also
perform in different ways in 2013. The Motor business made a useful profit. Our animal health business had
retained its good record of profitability, and the Motor another very good year, continuing to grow strongly
Trade and Engineering businesses also produced very and deliver attractive returns, and the legal protection
satisfactory returns. The Packages account was much account also delivered strong profits. The latter account
(1) Operating Profit is profit before tax adjusted for realised gains, impairments and other income on an Allianz SE Group Basis.
02 Chief Executive’s Report 3
05 Group Strategic Report
has, though, been affected by the expected changes in The Group continues to engage actively in numerous
the civil justice system relating to the recovery of legal projects being undertaken with other companies in the
expenses and premiums, and written premiums Allianz family to leverage skills, expertise and scale in
therefore declined by more than 25%. Premiums will specific areas. The innovation programme continues to
continue to run at lower levels for the foreseeable deliver a large number of valuable ideas which assist
future, but we have been reshaping the account to both growth and efficiency. The Group has continued
allow a continuance of good returns. The Corporate to put significant effort into minimising its impact on
Partners business has continued to grow its motor the environment, including reducing its carbon
book, as the partnerships in the automotive industry emissions, and into promoting social responsibility.
bear fruit, and it has begun to grow its own animal Amounts raised for charity have continued to increase.
health business. Losses on the Corporate Partners
account continue while we invest in new partnerships. During 2013 we began a much more active
The volumes from extended warranty, creditor and all programme to promote our brand in the UK. We think
risk accounts continue to decrease as many of these that this is an important issue to tackle in the light of
partnerships are run off. our aspirations for growth in commercial and retail
markets, particularly via direct business. The branding
Investment returns continue to be impacted by low activities are designed to appeal to our target market
interest rates and these levels are expected to continue and have included advertising in many formats,
for the foreseeable future, underlining the importance of including on television. The branding work also
achieving strong underwriting profits. Investment policy includes our sponsorship of Saracens rugby club. Their
has continued to evolve during 2013, with a further shift newly refurbished stadium, which opened in early
away from Government bonds to enable the purchase of 2013, is named Allianz Park and is used extensively by
a small portfolio of equities and a modest increase in the the local community as well as the club themselves.
exposure to property. Overall, the fixed interest
investment portfolio was above its benchmark. The During 2013 we made further good progress in our
property portfolio was helped by the much better project to implement the requirements of Solvency II.
market in 2013, and it also out-performed its This is a far reaching piece of legislation that requires
benchmark. The capital base of the Group at the end of significant changes to the way insurers run and control
2013 was £991.5m compared to £994.1m last year, after their businesses. The Group has been working with the
restating 2012 having adopted the amendments to the Prudential Regulation Authority towards gaining
pensions accounting standard applicable from 2013. Internal Model Approval. It now seems likely that the
formal start of Solvency II will be in 2016, but many of
The Group continues to pursue its strategy of only the requirements will be introduced earlier. Although
underwriting business where there is a realistic prospect there is still significant work to be done for reporting
of achieving a return in excess of the cost of capital. purposes, we have already implemented large parts of
Central to our objective of profitable growth is the the new requirements to reap the advantage of more
continuing investment in the development of the advanced risk control and a better capital model.
technical, sales and leadership skills of our employees.
The well established Underwriting Academy and Claims In 2013, the Financial Services Authority split formally
Academy programmes are key to the continued into two new regulators, the Prudential Regulation
development of technical insurance skills. We have also Authority and the Financial Conduct Authority. The
been running for several years an extensive programme regulators had already been acting primarily in their
of development in our sales skills and this continues. new roles in 2012 and we had been subject at the end
4 AnnualReport2013
Strategic Review
of 2012 to a formal visit of both sets, as part of the The Group has been widely recognised both within and
normal regulatory review cycle. We received the beyond the insurance industry and a number of awards
feedback from these visits in early 2013 and we have have been won over the last few years. In 2013, Allianz
completed all the actions that were requested of us. won the Investing in the Profession and Young Achiever
We continue to work closely with our regulators and categories at the British Insurance Awards, was voted
maintain an open and regular communication. Brokers’ Insurer of the Year at the UK Broker Awards,
Commercial Insurer of the Year at the Insurance Times
There continues to be legal and political pressure Awards and won three categories in the Underwriting
regarding the way personal injury claims are handled, Service Awards. Additionally, individuals and teams at
and the way the motor market operates in respect of Allianz won awards in the fields of Technology, Claims,
credit hire and referral fees. Legislation was effected in Social Media and Business Analysis. These awards and
2013 to prevent lawyers’ success fees and After The our performance in 2013 would not have been possible
Event insurance premiums being recoverable from the without the highly skilled and committed contributions
losing party and to ban referral fees. In addition, lower of our employees, both in the UK and India. My thanks
fixed fees were introduced for legal work on to everyone in the Group for what was delivered to our
straightforward personal injury cases. Discussion on customers and shareholders during the year, and also
whiplash claims continues, and the Competition for their generosity in supporting, both with their time
Commission has produced preliminary findings from and financially, the various charities and voluntary
their investigation into the private motor insurance organisations with which the Group is involved. As a
sector with a specific focus on credit vehicle hire CEO who has only been in post for 6 months, I would
companies and insurers’ repair networks. It is expected also like to thank Andrew Torrance, my predecessor,
that their final report will recommend fundamental who spent ten successful years leading the company to
changes to the way in which claims are handled, but the prominent position within the industry that we
any changes are unlikely to take effect before 2015. have achieved.
We welcome the various legislative changes and The Group begins 2014 in a strong business and
market investigations, as we believe that the old system financial position relative to our competitors. There are
delayed valid compensation payments to claimants, now some signs of economic recovery in the UK, but
and resulted in too much of the total cost of claims several years of reductions in real earnings have put
being spent on the costs of settlement rather than significant financial pressures on many of our
compensating the injured party. Even with the changes customers, and these are unlikely to be significantly
already implemented, there is too little opportunity for alleviated in the short term. At the same time we
the at fault insurer to control the costs of compensating expect continued low investment income and
non-fault claimants, which drives up overall costs. continued strong competition to write business at rates
that on too many occasions are inadequate.
The Allianz business had another good year in 2013, Nevertheless, the Group is well equipped through its
with good results from both Allianz Retail and Allianz customer relationships, strong service delivery, wide
Commercial, and the acquisition of further major range of products, robust financial position and a
corporate partner deals. In addition, a further increase knowledgeable and dedicated workforce to meet these
from our brokers in Retail’s ‘net promoter score’ (a challenges and again be successful in 2014.
customer service metric) means that both Retail and
Commercial are ranked as the top customer-service
insurer amongst their peers using the same measure.
Commercial have held this position for a number
of years. J M Dye
Chief Executive
02 Chief Executive’s Report 5
05 Group Strategic Report
Group Strategic Report
In accordance with the Companies Act 2006, the Directors present their
Group Strategic Report for the year ended 31 December 2013.
Group Overview
A number of the Group’s subsidiaries are regulated by
the Financial Conduct Authority and/or the Prudential
Background Regulation Authority.
Allianz Holdings plc controls the principal insurance
operations of Allianz SE in Great Britain. Through its Business Strategy and Overview
subsidiary companies, Allianz Holdings is one of the of 2013 Results
country’s leading general insurance groups. The
Company is not required to prepare an Operating and The Group’s mission is “to be the outstanding
Financial Review as recommended as best practice by competitor in its chosen markets by delivering
the Accounting Standards Board. The Board of the products and services that clients recommend, being a
Company is conscious of its position as a major great company to work for, and delivering the best
financial services provider and includes in the combination of profit and growth”.
following Strategic Report details of its performance,
some of the key influences on its business in 2013 and Consistent with its mission the Group in recent years
the prospects for 2014. has pursued a strategy of proactively managing the
insurance cycle to maximise the return for
The Strategic Report does not purport to meet the shareholders whilst carefully managing its capital base.
requirements of an Operating and Financial Review. It This strategy has been highly successful and the
should be read in conjunction with the Chief underlying profitability of the companies that comprise
Executive’s Report and the other sections in the Annual the Group has been very satisfactory in recent years.
report, including the Notes to the Accounts.
The Group’s overall performance and investment in a
number of market leading initiatives has been widely
Nature of Business recognised both within and beyond the insurance
industry and a number of awards have been won over
Through its insurance subsidiaries the Group is one of the last few years. In 2013, Allianz won the Investing in
the top ten general insurers in the United Kingdom the Profession and Young Achiever categories at the
measured by gross written premium. The Group offers British Insurance Awards, was voted Brokers' Insurer of
a wide range of products and has a presence in most the Year at the UK Broker Awards, Commercial Insurer
general insurance markets. However it concentrates of the Year at the Insurance Times Awards and won
resources on markets and products which will deliver three categories in the Underwriting Service Awards.
the best return for shareholders. The Group distributes
its products almost entirely in Great Britain. The insurance market is subject to pricing cycles as
capacity expands and contracts driven by fluctuating
The Group operates through three regulated insurance returns. During the year, insurance rates fell by over
companies and is organised into retail and commercial 10% in the personal lines motor market, primarily in
divisions. Each division trades in its own market response to changes in the civil law surrounding the
segment distributing a range of products under a costs of handling bodily injury claims. It is unclear by
number of brands. An analysis of the 2013 results and how much ultimate costs will fall, and the company
the prospects for 2014 are set out in the individual reduced its volume of broker motor business in the
trading division Business and Financial Reviews. belief that the market had over-reacted to this
6 AnnualReport2013
Strategic Review
KeyPerformanceIndicators 2013 2012 2011
£m £m £m
Grosswrittenpremium 1,931.3 1,879.8 1,832.2
Netwrittenpremium 1,820.5 1,773.6 1,716.1
Underwriting results 73.0 65.4 70.4
Operatingprofit 170.5 161.5 168.7
Profitbeforetax 187.3 166.5 175.9
Economicvalueadded 71.1 73.1 75.0
Claimsratio 64.5% 64.4% 63.9%
Expenseratio 31.4% 31.9% 31.8%
Combinedratio 95.9% 96.3% 95.7%
UKemployeeturnover 14.0% 13.9% 15.3%
Source – Management Accounts. Prior years have not been restated for any change in accounting standards.
development. The account remained profitable in 2013 Operating profit is profit before tax adjusted for
and adequate returns should be achievable in the near realised gains, impairments and other income on an
term provided the market does not weaken further. The Allianz SE Group basis.
motor accounts written direct and through Corporate
Partners made losses, primarily as a result of investing
in the growth of these channels. More detail can be Future Outlook
found in the Chief Executive’s Report.
Premium income at both a gross and a net level is
In commercial lines, rate strength varied by account, expected to increase in 2014, driven by further rate
with liability increasing by most and property by least. increases and the impact of new direct and corporate
All lines except the engineering element of the partners business. It is not intended to have any
property business saw rate strength above claims significant underlying growth in commercial volumes
inflation again in 2013, but in general there has not until the environment improves further, but some
been sufficient strengthening yet to return current modest volume increase is expected in 2014. By
accident year loss ratios to acceptable levels for all contrast, Retail expect to continue to drive up customer
classes. Despite the difficulties of obtaining adequate numbers faster in direct and corporate partner areas.
rate strength, strict underwriting discipline has been There remains a risk that both growth and profitability
maintained to minimise the impact of the insurance may be tempered by the continuation of the current
cycle. Gross written premiums for the Group were difficult market, especially in private motor, and by the
£1,931m, a 3% increase over last year, with very similar impact of the economy on our customers. Profitability
rates of growth for Commercial and Retail. Operating is expected to reduce from current levels as the costs of
profit at £170.5m was at a satisfactory level, new investment, especially in direct, will counteract
particularly given the market conditions. Profit before improvements that should arise as previously achieved
tax was £187.3m compared with £179.0m in 2012 rate increases ahead of claims inflation earn through
after restating for the new pensions standard. into 2014. The difficult economic conditions have
already had a significant impact on liability claims, and
The Group has identified a number of Key the company remains very vigilant with respect to
Performance Indicators against which to measure its claims fraud. By definition, insurance is an uncertain
progress. One of the most important of these is business and profitability in 2014 could also be
Economic Value Added. Economic Value Added is the influenced by a higher than expected level of major
profit after tax in excess of the cost of assigned capital. claims and weather events.
02 Chief Executive’s Report 7
05 Group Strategic Report
Risk and Capital Management for discussions with the parent company. Capital is
allocated to each insurance company and trading
A Risk Management department, independent of division based upon the underlying risks the business
normal business activities, assists the Board and presents. Each division is required to make a minimum
Management Board with the development of risk return on its allocated capital. The minimum returns
policies and the identification and monitoring of the on allocated capital are incorporated into divisional
key controls that mitigate risk. To ensure risk objectives and the personal performance targets of
management is fully integrated into the business and senior management to ensure that the underlying
effective control is maintained, each key risk is owned business operations are run and managed in a manner
by a member of the Management Board. The Risk consistent with the Board’s appetite for risk and with
management department has teams of both the capital available.
quantitative and qualitative risk analysts, and the
Chief Risk Officer attends Management Board During the last few years, the internal risk model
meetings and personally presents his reports to the has been further developed to meet the emerging
Board Risk Committee. standards expected in a Solvency II environment.
The Group has been actively working within the
Allianz SE, the ultimate parent company, has PRA’s Internal Model Approval Process, which allows
introduced minimum risk standards which the Group the Group to have a close dialogue with the Regulator,
must adopt. The Group complies with the group and to develop the significant volume of evidence
minimum standards in all material respects. needed before ultimate model approval can be
obtained. The PRA ICA requirement is met by the
The key internal operational and financial controls are internal Solvency II model, suitably adjusted to meet
regularly tested by Internal Audit. A comprehensive ICA requirements and to reflect developments in the
programme of risk based reviews is conducted. Key risks being run by the Group. Although there was a
issues from individual audit reports are summarised to regulatory Risk Assessment visit during 2012, the PRA
form a regular assessment of the control climate did not conduct a separate review of the ICA, and
across the business. Internal Audit maintains a close amended the existing Individual Capital Guidance
working relationship with the Allianz SE Internal (ICG) only to allow for pensions risk. Although this
Audit Department. addition was in line with our own calculations for
pension risk, using the PRA basis for pensions, the
All the material key controls operated by the business underlying ICG we believe is now conservative. We
that guard against financial mis-statement have been have therefore asked the PRA to assess our latest ICA to
reviewed, documentation updated and subjected to reconsider the ICG. We believe that a capital
management and internal audit testing. No material requirement in line with the Group’s own ICA would
weaknesses or significant deficiencies have arisen in still allow us to operate the business without undue
either 2013 or 2012. New controls and standards have risk to policyholders or shareholders.
been gradually introduced so that the Group can meet
the standards of governance and risk management The Group has little exposure to either industrial
required to satisfy Solvency II. disease claims arising from asbestos exposure or
pollution claims. Historically the Group wrote a very
The Group uses a number of risk based capital models limited portfolio of UK liability business but did write
and techniques to ensure that its capital base is some London market marine and non-marine
consistent with its risk appetite and sufficient to meet business which is now in run-off and is where most of
its current and future business plans. These models the exposure arises. The ongoing risks were reduced in
are used for the PRA Individual Capital Assessment 2007 following the approval by the English and US
(ICA), rating agency discussions, internally for Courts of a Scheme of Arrangement to enable a
determining capital adequacy and allocation as well as significant part of the Group’s run-off exposure to be
8 AnnualReport2013
Strategic Review
determined and settled. In other areas of the business The Group employs around 5,600 people dedicated to
there has been some increase in the number of the UK business. Approximately 4,600 are employed in
reported claims in 2013. There are many uncertainties Great Britain and approximately 1,000 in India in an
determining disease reserves but based on the offshore service centre. The offshore service centre
available evidence, the Group believes it is fully principally provides IT and administration services to
reserved for the remaining liabilities. the Group’s businesses. The number of people
employed in India is expected to continue to increase
in 2014 as the Group increases the range of services
Share Capital provided to other Allianz SE companies.
There were no changes in the capital structure or
issued share capital of the Company during the year. Employees
The Company owns 100% of all its subsidiaries. All
employee incentive share schemes use the shares of The Group continues to invest in the development
Allianz SE. of its employees and believes that it will deliver superior
returns through investing in market leading technical,
customer, sales and leadership skills. Technical
Group Organisation employees continue to undergo development through
either the Underwriting Academy or the Claims
The Group’s insurance, non insurance and policy Academy initiatives, and there are a range of
servicing activities are undertaken in a number of professional development programmes covering other
specialist companies. Allianz Holdings plc is the aspects of the business. All managers are enrolled in a
holding company. Allianz Insurance plc is the main leadership programme which is regularly enhanced.
insurance company with the non regulated activities
being carried out in a number of specialist companies. The Group has a comprehensive management and
The largest are Allianz Engineering Inspection Services development training programme. The Group is an
Limited, Allianz Management Services Limited and Investor in People.
Allianz Cornhill Information Services Private Limited, a
company registered in India.
Employees at the start
of their Annual Charity
Bike Ride.The team
comprising of 20
employees and 5 support
crew cycled from
Guildford Head Office to
Brussels to raise money
for Help The Hospices.