Aviva Insurance Ireland ceded €70 million of net underwriting profit to its UK owner last year as it reinsured most of the motor, home and commercial insurance business written in the Republic with its parent.
While the reinsurance deal with its parent – known in the industry as a quota share agreement – allows Aviva Insurance Ireland to share risks written in the Republic more widely across the group, it also depresses the reported profitability of the local entity in good times.
Aviva Insurance Ireland, the third largest insurer in the Republic by premium income, reported an underwriting profit of €15 million last year, the company said in its latest annual solvency and financial condition report. The report notes that €70 million in net underwriting profit ended up with the UK unit under the reinsurance deal.
The company reported a pretax profit of €22 million for the year, after €20 million of income from its investments portfolio and €13 million of certain expenses were also included, according to the report.
Aviva Insurance Ireland’s gross written premium income rose 11.6 per cent last year to €668.1 million, it said. The figure includes some European commercial insurance business written through a UK branch of the company.
Aviva Insurance Ireland reported in February that its business in Ireland generated €584 million of gross written premiums. This suggests that about €84 million of premiums were written through the UK branch.
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The Irish company 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. The deal sees it hand over 85 per cent of its European mobile phone insurance risk and 100 per cent of all other business written, according to the solvency and financial condition report.
Of the €668.1 million of business written last year, €506.8 million was accepted by its immediate UK parent – the biggest amount ceded overseas by a general insurer in the Irish market. It equated to almost 76 per cent of total premiums.
A spokeswoman for the insurer declined to comment on the intragroup reinsurance arrangements.
Of the top five insurers operating in the State, only RSA Insurance Ireland, part of London-based RSA Group, shares such a percentage of risk. RSA Ireland ceded €306.8 million of its €399.9 million of gross written premiums last year.
“The main purpose of the group [reinsurance] treaty is to ensure effective capital, earnings management and to facilitate the company’s underwriting capacity for its customers,” a spokesman said. “The profit or loss ceded to the parent company depends on where the claims arise by lines of business.”
The underlying division of income from the reinsurance contracts is complicated, however, by reinsurance commissions received by Irish entities from their parents to cover certain administrative and other costs associated with writing the original insurance coverage.
Allianz Ireland has the third-highest intragroup reinsurance deal among the main insurers in the market, with a 50 per cent quota share agreement with Allianz Re Dublin DAC. Both are part of the German-based Allianz Group.
Axa Ireland, the largest insurer in the Republic, and FBD Holdings, the fourth-largest and only indigenous Irish player, reinsured 2.6 per cent and 7.6 per cent of the business they wrote last year, according to data in their reports. FBD reinsures with third parties; Axa Ireland did not report any quota share deal with its French parent in its report.
