We are pleased to report that AEGIS had another successful year of solid bottom line financial growth in 2013. As of year-end, surplus grew by 5%, or $56 million, to $1,156 million, a new high for AEGIS. We’ve now grown surplus by close to $400 million since 2008. Gross written premiums for the year were $1,280 million, which is $35 million over the prior year and also a record high for AEGIS. Most noteworthy, the membership universally supported a 10% rate increase across our excess liability book. Thanks very much for this needed support.
Total gross investment return for the year was 2.2% which was 160 basis points lower than our expected return for the overall portfolio. Fortunately, we had strong equity returns of 24.4% to offset our fixed income return of (0.2%), a reflection of this low interest rate environment. Nonetheless, we believe these returns will still compare favorably to our peers.
Happily, our overall combined ratio of 97% was 11 points better than in 2012. This improvement includes our London operations’ excellent 85% combined ratio. But our U.S. operations’ combined ratio also greatly improved to 111% which was 17% better than last year. This ratio would have been even better, but for further property losses from Superstorm Sandy as well as our largest risk loss ever due to a natural gas plant explosion. Most importantly, thanks largely to the 10% rate increase in 2013, our combined ratio for excess liability dropped 56% to 113%. This is a significant step towards sustainability, and the positive effects of that rate increase will continue to flow through our financials in 2014. We hope that similar rate increases for excess liability in 2014 will help bring that line of business closer to the breakeven point. These rate increases contributed greatly to surplus growth notwithstanding the low investment returns available this year.
We look forward to reporting the final audited results in our annual report, which will be published in April.
We are pleased to announce that Ron Litzinger has been elected to the AEGIS Board of Directors. Ron is the president of Southern California Edison, one of the nation’s largest investor-owned electric utilities, where he has served in numerous capacities since he joined as an engineer in 1986. Prior to joining Edison, he was an engineer for Texaco subsidiaries. In addition to his responsibilities on the AEGIS Board, Ron will serve on the Board’s Loss Control Committee. We welcome Ron to the Board and look forward to his contributions.
As the scope and nature of cyber threats evolve, the need to protect Operational Technology (OT) environments that control assets and infrastructure has become as critical as the need to protect IT environments. Those of you who attended our Policyholders’ Conference in Baltimore will recall we announced the commission of a cybersecurity white paper with BAE Systems Detica (BAE), a world-renowned cybersecurity consultant. BAE interviewed organizations in the energy and utility industry to assess the development and implementation of security measures that protect OT environments. The white paper, Cybersecurity Report for the Energy and Utility Industry, provides BAE’s observations from these interviews and its field work over the years, along with insights into cybersecurity risks, best practices and trends of particular interest to those responsible for protecting the OT environments in the energy and utility industry.
We will mail a copy of the white paper to every risk manager at our member companies, and we encourage you to share it with your CEO, CIO, COO and others in your organization with responsibility for the security of your IT and OT systems. Additional paper copies are available by request at email@example.com, or you may download the PDF from the password-protected section of our website at aegislink.com (Resources > Publications > Underwriting).
The white paper has also helped guide the development of our new cybersecurity coverage and services offering from AEGIS London – CyberResilience. The policy offers first and third party coverage for cyber attacks against OT and critical infrastructure – in addition to data protection and privacy insurance – the first to do so in a standard product. Given the convergence of IT and OT, increased cyber terrorism activity, and the interdependence of operational assets within the energy industry, there is a clear need to develop tailored cyber insurance for our members to reflect their unique exposures. Our new product therefore combines coverage with a service-based offering which provides a combination of in-house cyber underwriting assessment, risk management consultancy, loss control, threat analysis, incident response and vulnerability management in conjunction with global experts in the critical infrastructure industry.
For more information, please contact George Keefe in our East Rutherford office by e-mail or by phone at 201.508.2797, or Rick Welsh, Head of Cyber Insurance at AEGIS London, by e-mail or by phone at 011.44.207.265.2140.
Our joint Claims and Loss Control presentation at the Policyholders' Conference in Baltimore was rated very highly in the conference evaluations. This presentation described the industry's loss history, highlighting those claims that have consumed the largest portions of the mutual’s surplus over time.
We felt it would be useful to write a comprehensive white paper that describes these findings in greater detail as well as the loss control measures and other AEGIS services that can help prevent and minimize these kinds of losses in the future. Our hope is that risk managers can circulate this white paper to their CEOs, COOs and other member company personnel to help impress upon them the importance of state-of-the-art loss control policies and procedures.
We recognize the sensitivity of some of this information and assure our member companies that the RMAC and AEGIS Claims counsel will review it closely prior to its publication. For more information, please contact Tony Calega by e-mail or by phone at 201.508.2731, or Gil Gould by e-mail or by phone at 201.508.2790.
Please save the date for PHC 2014, which will be held Monday, July 28 to Thursday, July 31, 2014 at the Manchester Grand Hyatt in San Diego, California. The hotel overlooks San Diego Bay and Seaport Village, and it’s convenient to the city’s many attractions, including the Gaslamp Quarter, San Diego Zoo, SeaWorld and Balboa Park. In addition, the hotel’s guest rooms have just been refurbished, and the floor-to-ceiling windows open to let in the fresh sea breezes. We're planning another informative and entertaining conference and we look forward to seeing you, your families and guests this summer at PHC 2014 in sunny San Diego.
The RIMS 2014 Conference will be held at the Colorado Convention Center in Denver, Colorado from Sunday, April 27 to Wednesday, April 30. AEGIS staff, including some of our excess liability, D&O, property and London underwriters, will be available to meet with you at the AEGIS and AEGIS London booth (#546) during exhibit hall hours, or you may schedule a meeting at the AEGIS meeting room at the Sheraton Downtown Denver in advance of the conference. We also invite you to join us and your industry colleagues for drinks and hors d'oeuvres on Monday and Tuesday, April 28 and April 29, from 5:30 pm to 7:00 pm at our hospitality suite at the Sheraton Downtown Denver.
Please save the date for the 2014 AEGIS Claims Seminar which will be held October 20 to 22 at the Fontainebleau Miami Beach in Miami Beach, FL. The AEGIS Claims Seminar in 2012 drew an audience of more than 150 claims and litigation professionals from around the country who gathered to learn and share their experiences. Once again, we will focus on the important issues facing AEGIS members in the defense of their claims, including electric and gas case studies as well as other topics of interest to claims professionals and litigators for the utility industry. The seminar will be eligible for Continuing Legal Education (CLE) Credits.
Please do not contact the hotel to make room reservations. We are holding a block of rooms for all seminar attendees and they can be reserved as part of the seminar registration process that will begin in early August.
For more information, please contact Mark Bluestein by e-mail or by phone at 201.508.2635.