Ratios for AFM Members Kathryn Moore and Steve Dixon of SDA llp - PowerPoint PPT Presentation

Comparative Expense Ratios for AFM Members Kathryn Moore and Steve Dixon of SDA llp AFM 2018 Conference

Overview Aims of presentation Information surveyed Non-Life observations Life observations

Aims of presentation Share information with AFM members on level of expense ratios of similar firms Discuss trends over last two years Show results by sector Suggest possible areas of further investigation

Information surveyed: 29 companies SFCR documents Report and Accounts 2016 and 2017 • Premium Claims and • Profit & Loss account year ends • Notes to the accounts Expenses • SCR/MCR • Own Funds

Information surveyed: Comparative information Written/Earned Premium Claims Incurred Expenses Incurred Split of Expenses (acquisition/ongoing) Investment Expenses and Income Link with Own Fund and Solvency

AFM General Insurers: 7 Cash Plan Providers 4 additional Non-Life Insurers Expense information from Report and Accounts Solvency information from SFCR Comparisons shown between last two year-ends

GI Earned Premium General Insurer Earned Premium 2016/2017 160,000 140,000 120,000 Earned Premium £000's 100,000 80,000 60,000 40,000 20,000 - CP1 CP2 CP3 CP4 CP5 CP6 CP7 NL1 NL2 NL3 NL4 2016 Earned Premium 2017 Earned Premium

GI Claims and Expenses General Insurer Profitability 160,000 140,000 120,000 Claims/Expense/Profit £000's 100,000 80,000 60,000 40,000 20,000 - CP1 16 CP1 17 CP2 16 CP2 17 CP3 16 CP3 17 CP4 16 CP4 17 CP5 16 CP5 17 CP6 16 CP6 17 CP7 16 CP7 17 NL1 16 NL1 17 NL2 16 NL2 17 NL3 16 NL3 17 NL4 16 NL4 17 -20,000 Claims Expense Underwriting Profit

GI Ratios 100% 120% -20% 20% 40% 60% 80% 0% CP1 16 CP1 17 CP2 16 CP2 17 CP3 16 CP3 17 General Insurers Profitability Ratios CP4 16 CP4 17 Claims% CP5 16 CP5 17 Expense% CP6 16 CP6 17 CP7 16 UWP% CP7 17 NL1 16 NL1 17 NL2 16 NL2 17 NL3 16 NL3 17 NL4 16 NL4 17

GI Expense Ratios 2016 and 2017 Expense Ratios 60% 50% 40% 30% 20% 10% 0% CP1 CP2 CP3 CP4 CP5 CP6 CP7 NL1 NL2 NL3 NL4 2016 Expense Ratio 2017 Expense Ratio Cash Plan Average Expense Ratio Non-Life Average Expense Ratio

GI Expenses split by Type Expenses by Type 30000 Expenses £000's 25000 20000 15000 10000 5000 0 CP1 CP1 CP2 CP2 CP3 CP3 CP4 CP4 CP5 CP5 CP6 CP6 CP7 CP7 NL1 NL1 NL2 NL2 NL3 NL3 NL4 NL4 16 17 16 17 16 17 16 17 16 17 16 17 16 17 16 17 16 17 16 17 16 17 total expenses acquisition costs administrative expenses staff costs Staff Costs vs Non Staff Costs (as % of Acquisition Costs/Admin Costs split Total) 100% 80% 90% 60% 70% 50% 40% 30% 20% 10% 0% -10% CP1 16 CP1 17 CP2 16 CP2 17 CP3 16 CP3 17 CP4 16 CP4 17 CP5 16 CP5 17 CP6 16 CP6 17 CP7 16 CP7 17 NL1 16 NL1 17 NL2 16 NL2 17 NL3 16 NL3 17 NL4 16 NL4 17 CP2 16 CP2 17 CP3 16 CP3 17 CP4 16 CP4 17 CP6 16 CP6 17 CP7 16 CP7 17 NL3 16 NL3 17 NL4 16 NL4 17 staff costs non staff costs acquisition costs administrative expenses

GI Investment Expenses Investment Income vs Investment 2017 Investment Income vs Expenses Investment Expenses 800 50000 6000 Investment Income £000's Invezstment Expenses £000's IInvestment Income (£k) 40000 600 5000 30000 4000 400 20000 3000 200 10000 2000 1000 0 0 CP1CP2CP3CP4CP5CP6CP7NL1NL2NL3NL4 0 0 100 200 300 400 Investment Expenses 17 Investment Income 17 Investment Expenses (£k) 2017 Investment Income vs Inv Investment Income vs Inv Expenses Expenses % Income as % Income Inv Expenses as % Inv Income Investment Income £000's 6000 50000 40% Investment Income 40000 30% 4000 30000 20% 20000 10% 2000 10000 0 0% CP1CP2CP3CP4CP5CP6CP7NL1NL2NL3NL4 0 Investment Expenses as % of Income Investment Income 17 Exp as % income 17

GI Impact on Own Funds % change in expenses and Solvency Total Operating Expenses as a Ratios % of Excess Own Funds 30% 140% 20% 120% 10% 100% 0% 80% -10% 60% -20% -30% 40% -40% 20% Expense % Solvency Ratio 0% CP1 CP2 CP3 CP4 CP5 CP6 CP1 CP2 CP4 CP5 CP6 CP7 NL1 NL2 NL3 NL4 CP7 NL1 NL2 NL3 NL4 2016 2017

AFM Income Protection Providers: 7 Providers Expense information from Report and Accounts Solvency information from SFCR Similar measures used as for General Insurers (Loss Ratios and Expense Ratios)

IP Loss and Expense Ratios and Premium Health Business Premiums Health Expense Ratio 16/17 20,000 2016 2017 2016 2017 15,000 Premiums £000 Expense Ratio 100% 10,000 75% 50% 5,000 25% - 0% IP1 IP2 IP3 IP4 IP5 IP6 NDIP IP1 IP2 IP3 IP4 IP5 IP6 NDIP Health Loss Ratio 16/17 Health Combined Ratio 16/17 2016 2017 2016 2017 Combined Ratio 150% 300% Loss Ratio 200% 100% 100% 50% 0% 0% IP1 IP2 IP3 IP4 IP5 IP6 NDIP IP1 IP2 IP3 IP4 IP5 IP6 NDIP

Underwriting profit Health Profitability 250% 200% 150% 100% 50% 0% -50% -100% -150% IP1 16 IP1 17 IP216 IP217 IP3 16 IP3 17 IP4 16 IP4 17 IP5 16 IP5 17 IP6 16 IP6 17 IP7 16 IP7 17 Loss Ratio % Expense Ratio % UWP %

Acquisition Expenses as % of premium Acquisition Expenses as % Premiums 2016 2017 80% 70% 60% 50% 40% 30% 20% 10% 0% IP1 IP2 IP3 IP4 IP5 IP6 NDIP

Acquisition as % of expenses Split of Expenses Acquisition/Administration 120% 100% 80% 60% 40% 20% 0% IP1 16 IP1 17 IP216 IP217 IP3 16 IP3 17 IP4 16 IP4 17 IP5 16 IP5 17 IP6 16 IP6 17 IP7 16 IP7 17 Acq % Admin %

AFM Savings Providers: 11 Providers Expense information from Report and Accounts Solvency information from SFCR

£m management Funds under 100 150 200 250 300 350 400 450 50 0 Funds Under Management (split Unit-Linked and Save 1 16 Save 1 17 Save 2 16 Save 2 17 Save 3 16 Save 3 17 Save 4 16 Non Unit-Linked) Non Unit-Linked Save 4 17 Save 5 16 Save 5 17 Save 6 16 Unit-Linked Save 6 17 Save 7 16 Save 7 17 Save 8 16 Save 8 17 Save 9 16 Save 9 17 NDSave10 16 NDSave10 17 NDSave11 16 NDSave11 17

Total expenses as % funds Total Expenses as % FUM 20% 2016 2017 15% 10% 5% 0% Save1 Save2 Save3 Save4 Save5 Save6 Save7 Save8 Save9 NDSave10 NDSave11 Total Expenses as % Non UL FUM 20% 2016 2017 15% 10% 5% 0%

Expenses Written premiums and Written Premium £m 10 15 20 25 30 35 40 0 5 Save 2 16 Save 2 17 Save 3 16 Save 3 17 Save 4 16 Written Premium including Expenses Save 4 17 Expenses Save 5 16 Save 5 17 Save 6 16 Premium Less Expenses Save 6 17 Save 7 16 Save 7 17 Save 8 16 Save 8 17 Save 9 16 Save 9 17 NDSave10 16 NDSave10 17 NDSave11 16 NDSave11 17

New APE and Acquisition costs as % APE APE New Business 8 6 APE NB £m 4 Acquisition costs as % of APE 2 500% 0 Save2 Save3 Save4 Save5 400% 2016 2017 300% 200% 100% 0% Save2 Save3 Save4 Save5 2016 2017

Professional Fees Professional Fees as a % Non Unit-Linked Funds Under Management 2.0% 1.8% 1.6% 1.4% 1.2% 1.0% 0.8% 0.6% 0.4% 0.2% 0.0% Save1 Save2 Save3 Save4 Save5 Save6 Save7 Save8 Save9 NDSave10NDSave11 2016 2017

Key Takeaways Useful to Benchmark yourself against competitors Need to allow for differences in Business Model Managing expenses is important in a competitive market – you achieve what you measure Expenses cannot be considered in isolation