Management's discussion and analysis
International
The International segment includes most primary insurance written outside the United States. We have a presence as a licensed insurance company in Canada, and 11 countries in Europe, Africa, and Latin America. The International segment includes business generated from our participation in Lloyd's of London as an investor and as the owner of three managing agencies. This segment also provides coverage for the non-U.S. risks of U.S. corporate policyholders and foreign-based policyholders' exposures in the United States. We are predominantly a specialty commercial insurer in the international arena, marketing our specially designed policies and risk management capabilities to targeted customer groups.
Premiums - Written premiums in 1998 totaled $378 million, 29% higher than 1997 premium volume of $294 million. Virtually all of our International business centers recorded premium growth in 1998. Our Lloyd's of London operation generated premiums of $123 million in 1998, more than double the equivalent 1997 total of $61 million. Our agency group manages eight underwriting syndicates collectively representing approximately 4% of Lloyd's total capacity. Premiums generated in Africa and Latin America more than tripled to $34 million in 1998, primarily due to our acquisition of full ownership in an underwriting company in Botswana and the expansion of our South African operations. Our European operations' $166 million of written premiums in 1998 were 5% higher than 1997 despite the sale early in the year of our United Kingdom personal insurance business to Norwich Union Insurance Ltd. We exited this market, which had accounted for $57 million of written premiums in 1997, to concentrate on strengthening our position as a commercial insurance specialist in the United Kingdom.
Underwriting Result - The International segment's 1998 combined ratio of 116.7 was slightly better than the 1997 ratio of 118.1, primarily due to an improvement in the expense ratio. Improvement in loss experience across almost all of our International business centers compared with 1997 was offset by significant losses incurred in our Canadian operations, which posted a 148.8 combined ratio for the year. An unusually severe ice storm, which struck eastern Canada in early 1998, accounted for the majority of the deterioration in our underwriting results for Canada. Adverse development on prior years' business also contributed to the Canadian loss experience. Our European operations and the fast-growing operations in Africa and Latin America showed strong improvement over 1997, reflecting the benefit of corrective underwriting measures over the last several years.
1997 vs. 1996 - Premium volume in 1997 grew 9% over 1996, largely due to the favorable impact of foreign currency translation in our European underwriting operations. Premiums generated through our Lloyd's of London operation were only slightly ahead of comparable 1996 volume, reflecting our strategic decision in 1997 to focus on a limited number of syndicates that offered profitable growth prospects. The 1997 combined ratio of 118.1 was almost ten points worse than the 1996 ratio, primarily due to reserve strengthening for medical liability and personal coverages in the United Kingdom and losses incurred in one of the Lloyd's syndicates in which we were an investor. Our commercial underwriting operations in the United Kingdom, as well as our operations in Ireland, posted strong results in 1997.
Outlook for 1999 - We anticipate further growth in our International segment in 1999. We plan to build on our strategy of exporting our expertise in key specialty insurance lines to selected international markets which offer opportunities for profitable growth. An example is medical liability insurance, where our proven expertise has been a source of competitive differentiation for The St. Paul in several international markets. We have implemented corrective actions to swiftly address unprofitable results in our Canadian operations. We expect to continue to increase our capacity at Lloyd's of London, while at the same time pursuing efficiencies through the consolidation of our managing agency operations. In early 1999, we established a Global Ocean Marine business center in our International segment, designed to capitalize on our substantial market share in North America and our growing presence at Lloyd's.
