PB Week: Investment returns hit insurers' profits

Poor results

Brit’s finance director Matthew Scales has said on Wednesday that his firm’s investment portfolio had outperformed the FTSE share indexes and that the insurer had managed to sell its mortgage backed securities at a profit. However, this could not hide a deeply disappointing set of numbers which showed investment income drop dramatically from £81.5m to £2.1m. Brit UK’s net reserve release was £18.2m up from £16.9m this time last year with operating profit increasing in the UK from £8.5m [2007 H1] to £11.5m with its combined operating ratio improving to 104% from 105.6%.

Ecclesiastical, Highway, and Chaucer have announced similar difficulties this week showing how interlinked insurers’ profits are with the fundamentals of good investments which are aided by a thriving economy. Ecclesiastical’s decline in profitability has been dramatic as it has been hit by poor stock market returns and high levels of metal theft. Its group investment portfolio made a loss of £35.3m compared to a profit of £48.1m in the first half of 2007. Yes, you read that correctly. In fact Ecclesiastical’s claims costs fell from £49.8m to £44.7m in the same period and gross written premium was up £9m. In 2005, Ecclesiastical’s half year profit in 2005 of £44.3m, 2006 it was £27.8m and in 2007 was £28.7m.

Meanwhile, LV= has decided to capitalise on the market with the £150m purchase, subject to terms, of Highway Insurance. The insurer will be able to grow its broker arm through Highway’s strong relationships with over a 1000 brokers. Highway’s shareholders will receive 73.35 pence in cash a premium of 45% on the average closing price up to 30 business days. It would have been especially good news for shareholders as Highway reported a dip in profits to £1.4m from £11.8m this time last year.

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