One to watch

Published on 29/04/2009 21:21

Amlin 374p +18.75p Scotsman says BUY

AMLIN is an insurer operating in the Lloyds, UK, continental European and Burmudean markets. It has four divisions. Amlin London is organised into two business units: reinsurance and property and casualties. Amlin UK underwrites commercial business, while Amlin Bermuda is engaged in reinsurance. Anglo French Underwriters is a Lloyds approved cover-holder in France, focusing on small and medium enterprises.

There is nothing like a good disaster to excite insurers. After all, if your neighbour's roof blows off you are much more inclined to look at your own policy cover. Last year saw a significant increase in claims, partly as a result of a very bad – or good, depending on your point of view – hurricane season. Some estimates suggest that the total cost as a result of hurricanes such as Ike and Gustav was 28 billion.

Just to compound the felony, as insurance firms tend to keep capital reserves in quoted instruments, poor stock markets also took their toll. As a result, premiums will almost certainly rise. Even so, last year the company posted a profitability combined ratio – the ratio of claims to premiums – of 76 per cent, one of the best in the sector.

Unlike some of its peers, Amlin has a strong capital base that should allow increased underwriting, perhaps at a time when its competitors are finding life a little trying. Investors in insurance underwriters must acknowledge the risks.

There is always the threat of an unexpected catastrophe, while a firm's capital position can be compromised by difficult financial markets. Amlin still looks to be on a reasonable risk to reward ratio, on a prospective p/e of about eight and yielding 5 per cent.

&#149 The value of your investment could fall and you may get back less than you invested. You should take professional advice if you have any doubt about the suitability of this company for your portfolio.