This report makes critical analysis on Amlin organization exploring. It is mainly focused on the evaluation of its organization and gets a conclusion of whether it will successfully achieve its strategic goals. Previously, it gives a brief introduction to the background information of Amlin. It emphasizes that the company is a leading company in insurance industry. It has extraordinary performance and runs business in the Lloyd’s, UK, Continental Europe and Bermudian markets.And then, it applies four classic models to evaluate the company’s organization-Rich Picture, STEEPLE analysis, SWOT analysis, and Balanced Scorecard. For each model, it provides literature reviews in the characteristics. Then carefully apply them to evaluate the company to find its advantages, opportunities and potential improvements.
3.2 STEEPLE Analysis of Amlin
Amlin runs business in many countries and regions all over the world. Most of its chief offices are located in important financial centers, including London, UK, France, Bermuda, and Singapore etc.
Insurance industry is strongly related to macroeconomic status and is regulated by regional laws. Any unexpected change of social policy may lead to losses of the company.
|Amlin diversifies its business in many countries and regions. The diversity of its business across regions, classes and platforms enables it to allocate capacity where can earn more profits. Also Amlin keeps close contact with the local governments and has talented analyzing team to keep an eye on every single fluctuation in the markets. (Pidd ,2003)
Technology in insurance industry refers to the management of the company’s investment portfolio, as well as its ability to maintain diversified business and avoid risks. (Mejia,2008)
|To continue to seek higher return on its assets, Amlin focus on maintaining a balance between the catastrophe and non-catastrophe exposures within its portfolio. The asset portfolio has a broad spread by geography and class, which can effectively diversify risk. This kind of diversity of the business has contributed to its financial and operating performance in recent years. It also strongly sustains its rapid growth. (Campbell et al.,1996)
Insurance industry is closely related to the economic status. Either the financial market, or the real economy gets worse, will affect an insurance company’s profit.
|As always, Amlin endeavors to build its business in flexible and opportunistic way. This type of running business enables the company to shrink or grow individual lines according to the market conditions. (Arthur and
Sheffrin ,2003) Meanwhile, Amlin establishes excellent and long-standing relationships with key brokers. All of these efforts above make Amlin maintain its market position as an advantageous international insurer and reinsurer.
Good environmental conditions can bring stable profits to an insurance company. Any catastrophe may shake the industry and incur losses.
|As the level of natural catastrophe activity will influence its financial performance, it is important to spread its portfolio to different classes and run business in different regions. When business in a certain area get worse due to the increasing claims, the company can react quickly and find attractive opportunities in other regions. (Markowitz, H.M.,1959).The big earthquake happened in Chile in 2010 is a good example. Although the catastrophe caused an immediate loss in the company’s assets, the final return of its assets wasn’t affected a lot.
|Political factors may not affect the company’s business directly. But big political events may also lead to profits fluctuations.
|A specialist team with expertise and watch closely on the political conditions is necessary. Because insurance industry is positively related with macroeconomics, and political changes are important composition of the whole economy, it is required to make quick reactions to political events, in order to maintain stable profits.
|Insurance industry is regulated by international insurance laws. Meanwhile, a multinational company, like Amlin, is also subject to local laws in different regions.
|It is necessary for the working team to cultivate good sense of different laws. Once the regulations of insurance business change, making quick reactions and adjust the operating strategies accordingly, can help the company to avoid unnecessary losses. For a brighter side, legal changes may also bring opportunities for making profits in brand new fields.
|The nature of insurance business makes it closely related with ethical issues. Some insured companies may not conduct illegal actions, but not ethical.
|As an insurance company, Amlin should make efforts to establish a good social image. It is necessary to keep alert and identify the risk factors involved in a certain business that may bring troubles to the company.
4.0 SWOT Analysis
4.1 Literature review
SWOT is a prevailing method used to analyze whether the internal and external factors are favorable or unfavorable to realize a company’s goal. This analysis method is an incorporated strategic model of four aspects: strengths, weaknesses, opportunities, and threats. By performing SWOT analysis, management can better determine whether a goal of the company is attainable or not. It is also quite helpful to identify the attractive areas for the company to develop growth. (Hill and Westbrook ,1997)
4.2 SWOT analysis of Amlin
Ø The diversity of its portfolio-seek attractive profitable opportunities in different areas.
Ø Well positioned with a profitable core portfolio supported by strong client and broker relationships
-allow the company to seek opportunities on a steady base
Ø Benefits from previous investments in teams and acquisitions-sufficient capital support to further development.
|Ø Too many branches in different regions, countries and continents makes it difficult to manage the whole company efficiently- applying advanced management technology is the key focus. (Lawrence ,2011)
|Ø Over-capacity makes the competition intense in many market segments
-well diversified portfolio helps to withstand bad impacts.
Ø Market conditions getting worse and is hard to predict-profitable core portfolio provides stable profits to the company.
|Ø Market unstable factors make it harder to realize higher return of the whole asset portfolio- branches spread in many regions, countries and continents make it difficult to withstand shocks of market downturns.
First, Amlin benefits from the diversity of its portfolio, which enables the company to get access to a varied range of market conditions. For example, energy physical damage rates and energy liability rates have increased by 20% and 50% respectively since the Deepwater Horizon oil spill. While drilling activity in the Gulf of Mexico is presently low due to restrictions on permits. The event prompted the reassessment of marine and energy exposures, and is likely to result in demand for increased coverage which may exceed current market capacity. Undoubtedly, this can create an attractive opportunity for Amlin to expand its underwriting in this sector.
Second, Amlin is well positioned with a profitable core portfolio supported by strong client and broker relationships. This kind of well position is reflected in the company’s high retention ratios. The company’s underwriting approach is disciplined and focuses on profit instead of volume. The company sets up a cross-cycle target of an average return on equity, and all of its businesses are trying to ensure a return rate of 15%.
Third, Amlin benefits from previous investments in teams and acquisitions. These investments have broadened the client base, distribution and market access of the business. Amlin also remains in a strong capital position with capital and available resources of £695.9million.
Amlin has too many branches in different regions, countries and continents make it difficult to manage the whole company efficiently. Diversity becomes a disadvantage here. Also, market unstable factors make it harder to realize higher return of the whole asset portfolio. Thus, to minimize the possible losses, applying advanced management technology should be the company’s key focus.
As Amlin runs business in different countries and regions, the opportunities analysis should be focused in different countries and regions.
The investment in fleet motor accounts for an important part of the company’s portfolio. In the UK, an improving rating trend for fleet motor appeared at the end of 2010, and in January, there was an overall rate increase of 7.4% for fleet motor. It is reasonable to expect improvements in pricing for UK commercial lines. As market conditions improve, Amlin can take advantages of growth opportunities in the firmer motor fleet market and generates further substantial growth.
Amlin created Amlin AG through moving Amlin Bermuda to Switzerland. The new office is intended to provide the company with access to European reinsurance business which typically does not flow into the market places in London and Bermuda. Meanwhile, the location of the new office is Zurich, which is a major financial center and home of many global financial and insurance companies. This place provides great opportunities for the company to develop further growth and expansion of its reinsurance activities.
The impacts of the depressed global economy on premium volume, the declining investment yields, as well as the surplus capacity, are creating a challenging environment. Since Amlin is striving to pursue profitable growth, this challenging environment poses some threats to the company’s further development.
Over-capacity is still a driving factor to make the competition more intense in many segments of the market. In the US, the premiums to surplus ratios in property and casualty market are at the lowest level in the past 30 years. In many market sectors, particularly reinsurance, pricing is under the pressure of downward. Although the market had losses in 2010, the rates are still being reduced. Rate reductions in January in Amlin London and Amlin Bermuda are 3.2% and 4.4% respectively. Meanwhile, the trading conditions also remain difficult in Continental Europe, which needs the company to consider strategies to withstand possible bad impacts.
A further challenge is likely to be the substantially lower investment returns expected in 2011. The market conditions become more difficult to be predicted, and it gets even harder for Amlin to optimize its returns.
In Bermuda, the current pricing and new business are under pressures of incurring expenses before the development of earned premium. Thus, the company gives up on expecting it to make a material contribution in the short term, and is trying to find its longer term prospects.
5.0 Balanced Scorecard
5.1 Literature review
Balanced Scorecard (BSC) is used by managers as a strategic performance tool to keep track of the execution of activities by the staff within their control and to monitor the outcomes arising from these actions. As a model of performance, the BSC is effective in that “it articulates the links between leading inputs (human and physical), processes, and lagging outcomes and focuses on the importance of managing these components to achieve the organization’s strategic priorities.”(Abernethy et al., 2005)
5.2 Balanced Scorecard analysis of Amlin
The strategic focus released in the Amlin 2010 annual report includes:
·Continued optimization of the core business
·Further alignment of the business and operations with SolvencyIIrequirements.
·Completion of the integration of ACI, and continued performance improvement of its marine business.
The Core business has brought substantial and stable profits to the company. Continued optimization of core business will provide best support for the company to seek attractive opportunities in other lines.
SolvencyII is an EU directive that codifies and harmonizes the EU insurance regulation, and is scheduled to come into effect on 1 January 2013. SolvencyII should create an environment in which there are incentives and rewards for insurance firms to make use of modern risk management practices which are suitable to the nature and size of their business. (Hare , 2007) Under the implementation of SolvencyII , Amlin can better apply modern risk management practices tools into the regular businesses. Better understanding and application of SolvencyIIwill make Amlin earn more profits.
ACI is a key step in Amlin’s business integration plans. By completing the integration of ACI, the company can further develops the Amlin brand and maximizes the return from businesses.
i) First class client service
Amlin has a good tradition of thorough understanding clients’ needs and the market trends. This outstanding expertise helps Amlin develop its own brand and maximize the return from active marketing. What’s more, it also provides plenty of resources to support the company’s expansion. (Gollier ,2003)
ii) Profit focused underwriting excellence and effective risk management
Amlin’s underwriting business is organised around the goal of making profits. To make the profits remain stable, the company makes great efforts to develop its capacity to monitor underwriting quality. The implementation of SolvencyII is nearing, and the company keeps moving towards its new operating model. The implementation of a consistent risk management framework and risk assessment processes enables the company to optimize returns for the risks it undertakes.
iii) Core business expansion
Amlin endeavors to seek every attractive opportunity and continues to make expansions. Amlin Re Europe will be completed soon, which is an important step of its expansion. The company has extraordinary ability to identify and evaluate acquisition opportunities in target markets, which has been proven by its successes in several regions and countries. (Christos and Sugden, 2000)
iv) Superior culture for employees
Although Amlin is a big-size company and is still expanding, successful employment practices makes the whole company embed the Amlin Values. For the business, employee’s performance is related to remuneration, and the company makes great efforts to better manage its global talent. All of these above make Amlin the “place to work”.