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MS&AD takes $1.6bn hit on MS Amlin’s Lloyd’s, European profitability

19th November 2019 - Author: Luke Gallin

MS&AD Insurance Group Holdings has announced that MS Amlin’s European primary insurance and Lloyd’s business have been less profitable than it anticipated when acquired, and as such, an impairment loss of 175.4 billion yen (USD 1.6 billion) has been recognised as an extraordinary loss.

ms-amlin-logoThe announcement comes as part of the Japanese parent’s H1 2019 results, in which it discusses the details of the reorganisation of its international business in an effort to enhance the Head Office business framework of Mitsui Sumitomo Insurance (MSI).

Under the changes, the International Department will be transitioned to International Planning Department and will have responsibility for planning the overall strategy of international business, and International Business Department, which will oversee regional strategies, business promotion and management.

At the same time, regional holding companies will be eliminated and as there’s a transition to a structure under MSI’s direct management, the business clarification for the purpose of determining MS Amlin goodwill etc., will be reexamined. Furthermore, the European primary business, Lloyd’s business and reinsurance business will now be treated as three separate groups as opposed to one single group.

“Under this change, since the profitability of the Lloyd’s business and Europe primary insurance business fell short of the original business plan made at the time of acquisition, an impairment loss of 175.4 billion yen was recognized under extraordinary losses for assets such as goodwill and other intangible assets,” explains the firm.

This is another example of the challenges that can occur when operating within the specialist Lloyd’s of London insurance and reinsurance marketplace. While participating at Lloyd’s certainly has its benefits, for some, the cost of operating in the world’s oldest insurance market is simply too much when compared with the returns on offer.

In recent times, a number of syndicates have been placed into run-off with parent companies highlighting a challenge to hit cost of capital requirements, and while MS Amlin remains committed to the market, it’s clear that its parent expected more profits from this side of the business.

Despite the impact of the $1.6 billion write-down, MS&AD reveals that in fact there is no change to the net income attributable to owners of MS&AD in the consolidated earnings forecast, owing to a decrease of roughly 170 billion yen (USD 1.56 billion) in income tax expenses associated with the reorganisation for MSI.

Positively, MS Amlin’s net income increased dramatically year-on-year for the six months ended September 30th, 2019 to 155 million yen (USD 1.43 million), versus just 10 million yen (USD 91.9k) in 2018. At the same time, net earned premiums fell by roughly 1.5% to 3.1 billion yen (USD 28.5 million).

For MS&AD, the impact of the impaired loss resulted in extraordinary losses increasing significantly to 807 million yen (USD 7.4 million). However, net income still increased by almost 250% for the firm in the six month period, to 1.65 billion yen (USD 15.2 billion).

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