The high reliance of Ireland’s predominantly overseas-owned insurance sector on reinsurance contracts with their parent companies makes it difficult to use key annual filings to assess the underlying profitability of risk they are writing in the State.
A scan through the annual solvency and financial condition reports (SCFR) of the top five insurers in the market shows that they ceded 40 per cent of their combined €3.42 billion of premiums written by the local entities. Most were reinsured with their overseas parents.
Take Aviva Insurance Ireland, the third-largest insurer in the market, which generated €668 million of premiums last year (though about €84 million of these are estimates to relate to foreign business written through a UK branch). It reported in its latest SCFR, which it is obliged to submit to regulators annually, that it made an underwriting profit of €15 million last year.
However, the unit has an arrangement in place to reinsure 70 per cent of general and health insurance risks – essentially passing on associated premiums – with its immediate parent, UK-based Aviva Insurance Limited. It passes on between 85 per cent and 100 per cent of other business written.
Aviva Insurance Ireland noted that €70 million in net underwriting profit on business originated by the Irish unit ended up with the UK unit under the reinsurance deal.
But at least Aviva gave that level of detail. RSA Insurance Ireland reinsured €306.8 million of its €399.9 million of gross written premiums last year, mainly to its parent. However, it does not disclose the level of profits that were ceded as a result.
Allianz Ireland has the third-highest intragroup reinsurance arrangement, with a 50 per cent quota share agreement with Allianz Re Dublin.
Axa Ireland, the largest insurer in the Republic, and FBD Holdings, the only indigenous Irish player, reinsured 2.6 per cent and 7.6 per cent of the business they wrote last year, respectively. FBD reinsures with third parties; Axa Ireland did not report any deal with its French parent.
To be sure, reinsurance deals with overseas parents help spread risk and shores up the Irish units during bad times – and helps insurers to have more consistent risk appetite.
But they – and the related accounting of reinsurance commissions – also muddy the waters and make it more difficult to users of SCFRs and annual reports to assess the underlying profitability – or otherwise – of risk written in Ireland.
