, chairman of the Euler Hermes Board of Management, said, “Our robust results in the first half of 2012 despite a challenging economic environment reflect well on our core business strategy and prudent risk underwriting on behalf of our clients. The operational focus of our Excellence program continues to deliver results in top line growth and expense ratio improvement.
“Record client retention levels and continued market penetration in key regions confirms the value of credit risk insurance as a risk management tool for our clients.”
I. Results at the end of June 2012
A. Key figures
Top line growth is strong, at 5.6%, reflecting an increasing appetite for credit insurance coverage in the growth markets. Operating income reached €237.1 million and is strong, although lower than last year. Claims frequency remains under control; reinsurance recoveries have proved effective on a few larger cases, and the expense ratio is decreasing.
Demand for credit insurance was solid in the first half of 2012 amid continuing economic slow-down. New production was stronger than in the 2011 record year. Customer retention reached a record of 93% and facilitated 5.5% premium growth despite flattening prices and insured turnover volume on the existing portfolio.
Evolution of turnover by region
Overall Group market penetration is increasing in growth markets. Americas and Asia grew 8.2% and 30.1% respectively, at constant scope and exchange rates. A strategic revision in both regions refocused on key markets and partnerships and produced positive results. Business in China alone grew by 45% over the period at constant scope and exchange rates. Growth in traditional markets remains on average above 3% but is hampered by a sluggish GDP evolution impacting the insured volume.
C. Operating income
The operating profit remained strong at €237.1 million, although down from a year ago. The net expense ratio improved by 1.8 point, with lower expense ratios both in gross terms due to the Excellence program and in net terms after reinsurance commission. The net claims ratio increased 9.1 points year-on-year, of which 5 points are linked to three claims, including Schlecker. The remaining increase is due to higher claims frequency compared to the still very low levels observed in 2011.
Despite two of the three significant claims affecting the second quarter, the net combined ratio was lower at the end of June (73.1%) than in was at the end of March (73.9%), due to a continuously improving net cost ratio.
The net investment income was stable from June 2011 to June 2012, despite the low yield environment. Sound management of the bond portfolio produced a 3.5% growth in current investment income, before realized gains and foreign exchange impact.
D. Investment portfolio
At the end of June 2012, the market value of the Group's investment portfolio increased by €130.6 million compared to the end of 2011, to €4,048.6 million, after €193 million of dividends were paid early June.
E. Net income
Net income was €161.4 million at the end of June 2012, a reduction of €31.1 million compared to one year ago, as a result of lower operating profit and a one-off tax rate impact in the first quarter. The second quarter tax rate returned to the level of 27.5%.
Despite sustained and substantial market uncertainty and an increasingly challenging trading environment, the Group’s business model remains resilient and profitable. Risk/price adequacy continues to be a focal point.
In 2012 and 2013, businesses will face increased pressure on trade receivables management. Contributing factors include lower economic, credit and trade growth prospects, private deleveraging, and mounting business insolvencies worldwide. The risk expertise and vigilance of Euler Hermes in risk underwriting can help customers identify economies that offer additional trade route opportunities.