The Group Management Board presented the results as at September 30th, 2010 to the Euler Hermes Supervisory Board on November 4th, 2010. The results have been reviewed by the Audit Committee. “Turnover recovery is confirmed in Q3 2010 as Euler Hermes achieved a quarterly turnover of 542 M€ after 533 M€ in the second quarter and 505 M€ in the first. Q3 2010 turnover grew by 5.8% compared to Q3 2009. For the first nine months of the year, turnover reached €1,581 million, gaining momentum towards 2009 as gross earned premiums showed again a positive growth of 1% towards the first nine months of 2009. The combined ratio continued to improve in Q3 2010 dropping to 68.9% end of September 2010” stated Wilfried Verstraete, Chairman of the Euler Hermes Group Management Board. He added: “These good results significantly strengthen our capital base, securing our S&P AA- rating and offering a strong capital protection to our policyholders. Over the last nine months, Euler Hermes has focused its commercial efforts on providing the best possible risk coverage to our customers. As a result, our renewal rate climbed back above 90%, generating a 6% growth of gross written premiums and confirming our strategy to put our policyholders at the centre of our business development”.
I. Results at the end of September 2010
A. Key figures
2010 confirms an ongoing global economic recovery which accelerates in Q3 2010. In this environment, Euler Hermes recorded a net income of €255.8 million for the first nine months of 2010, compared to €0.9 million at the end of September 2009. The strong recovery towards 2009 is mainly driven by an improved combined ratio which dropped from 107.4% to 68.9%, profiting from the fact that the net claims ratio has been divided by more than half over the last twelve months. This strong improvement of the claims ratio is driven by the risk and commercial action plans that Euler Hermes has initiated since the beginning of the crisis in 2008, during which global insolvency index has increased by more than 50% in the period 2008-2009 with only a slight decrease of 3% in 2010.
Due to a 5.8% growth in Q3, gross earned premiums end of September 2010 renewed with a positive growth compared to 2009 (+1%) while services revenues has been impacted by negative growth of 9% mainly driven by lower debt collection fees.
Due to lower services revenues, Group’s turnover still show a slight decrease of -1% compared to the first nine months of 2009.
All regions are back to a positive growth end of September 2010 except South Europe which continues to be impacted by the portfolio reduction initiated by Euler Hermes in 2009.
C. Operating income
The net technical result, before financial income, reached €255.9 million at the end of September 2010, compared with a loss of €71.1 million at the end of September 2009. This improvement is mainly driven by a sharp decrease in the net claims ratio.
Net claims decreased to €341.1 million, down by 54%, compared to the previous year. The net claims ratio dropped to 40.8% compared to 85.0% at end of September 2009.
In the first nine months of 2010, Euler Hermes benefited both from higher positive run-offs from previous underwriting years and a decreasing current year loss ratio. End of September 2010, the net run-offs totalled €182.3 million, mainly driven by a sharp drop in claims notifications (more than 50% compared with the first nine months of 2009). The run-off ratio end of September equals to 21.8% of the net earned premiums.
Taking into account that claims notifications have reached a low point in August 2010, Euler Hermes foresees that the contribution of positive run-offs to the net technical result should decrease in fourth quarter 2010.
The net expense ratio deteriorated by 5.7 points from 22.4% to 28.1% at the end of September 2010. The main factors of this deterioration are lower net premiums (-0.9 points), lower service revenues (-3.1 points) and higher gross expenses (-2.9 points) balanced partially by an increase in reinsurance commission (+1.2 points).
The combined ratio after reinsurance equals to 68.9% end of September 2010, improving by 38.5 points compared with the first nine months of 2009.
Net investment income for the first three quarters reached €102.7 million, €16.2 million less than at the end of September 2009 (€118.9 million) mainly due to lower capital gains (€-30.8 million), partly offset by positive foreign exchange variances towards last year (€+18.6 million).
Thanks to the strong recovery of the 2010 net technical result, operating income has increased from €47.9 million at the end of September 2009 to €358.6 million at the end of September 2010.
This strong operational performance is also reflected in net income which reached €255.8 million at end of September 2010 compared to break-even at end of September 2009.
D. Investment portfolio
At end of September 2010, the fair value of the investment portfolio, including cash and cash equivalents, came to €3,714 million, compared with €3,339 million at year-end 2009, increasing by €375 million, mainly due to a strong operational cash flow generation.
Unrealised capital gains and revaluation reserves amount to €96 million at end-September 2010, up from € 70 million at end-December 2009.
The first nine months of 2010 saw a recovery in the world economy despite low GDP growth in many of the group’s core markets. Euler Hermes expects the world economy to grow at a lower pace in 2011 than in 2010. Corporate insolvencies should continue to decline worldwide next year. However, this decline is likely to be moderate (-3% in 2010 and -5% in 2011) as insolvency levels continue to remain much higher than before the crisis.
In the current economic environment, lacking visibility, Euler Hermes aims to run its business in the most efficient way by launching the transformation program “Excellence” to improve the group’s long term competitive edge both on market and cost side over the next three years. On market side, Euler Hermes targets to enable growth through a new global customer segmentation and a service model granting higher client satisfaction. On cost side, Euler Hermes targets to build an efficient global platform able to generate operational productivity gains through harmonised processes and simplified legal structures. Euler Hermes has engaged discussions with employee representatives in order to present the “Excellence” programme in detail. Euler Hermes will communicate and book the potential reorganisation costs once negotiations are finalised. The group expects to finalise discussions before year end.
II. Results for the third quarter of 2010
A. Key figures
Euler Hermes recorded a turnover of €542.2 million in the third quarter of 2010, up by 1.7% compared to the previous quarter (€533 million), and up by 5.8% compared to the third quarter of 2009 (+3.8% at constant exchange rates). Due to the low claims environment Euler Hermes has booked additional rebates on profitable policies which limited premium increases in the third quarter.
Euler Hermes benefited from a favourable claims environment in the third quarter of 2010.
The fall in net claims cost brought the net claims ratio to 27.3% in Q3 2010 compared with 38% in the second quarter of 2010 and 77.1% in the third quarter of 2009. Net positive run-offs of €88.2 million were generated thanks to lower than expected claims notifications related to previous attachment years.
The net expense ratio improved by 1.6 points during the third quarter of 2010 compared with the same period in 2009 (from 26.2% to 24.6%). The improvement was primarily due to lower current claims ceded to reinsurers.
The net technical result reached €135.6 million in the third quarter of 2010, up by €39.8 million compared to the second quarter of 2010 and by €147.2 million compared with the third quarter of 2009.
Net investment income amounted to €28.9 million in the third quarter of 2010.
Supported by a strong operational performance, net income for the third quarter of 2010 rose to €108.4 million compared with €99.8 million in the second quarter of 2010.
B. Breakdown of turnover by region (based on earned premiums)
Attached in the documents.