U.K. INSURERS SHOW LOWER PROFITSPosted On: Mar. 16, 1997 12:00 AM CST
LONDON-Soft pricing and a deterioration in U.S. underwriting results clearly show in lower 1996 operating profits for the major U.K. multiline insurers.
However, the results have not dampened the confidence of the insurers, several of which have plans to expand their business.
Guardian Royal Exchange P.L.C., which reported a 17.4% fall in pretax operating profits to 281 million pounds ($481.2 million) in 1996, also announced it has up to 1 billion pounds ($1.71 billion) in cash available for one or more acquisitions.
GRE said its operating result was achieved in the face of continuing competitive pressure and abnormally severe weather conditions in North America and the United Kingdom. It added that is continuing to withdraw from "non-core, non-performing markets."
Commenting on plans for the company's 1 billion pounds cash pile, GRE Chief Executive John Robins said possible acquisition targets could include another U.K. multiline insurer, a U.K. life and health insurance company, a North American specialty auto insurer, or a North American property/casualty insurer.
Another U.K. insurer, General Accident P.L.C., said it would continue to pursue its policy of "organic growth and growth by acquisition."
Perth, Scotland-based General Accident achieved the best results of the five major U.K. insurers that have reported 1996 figures. Its pretax profits overall improved 28.8% to 720 million pounds ($1.23 billion), though without investment gains pretax operating profits declined 3.4% to 421 million pounds from 436 million pounds.
Severe weather losses took a toll on nearly all the insurers. General Accident paid out 30 million pounds ($51.8 million) more on severe weather claims last year than it did in 1995. U.S. underwriting losses, which increased to 94 million pounds ($161 million) from 66 million pounds ($113.0 million), were blamed on increased weather-related claims.
General Accident Group Chief Executive Bob Scott said the underlying results in the United States continue to improve, and would have been better if not for the higher weather claims. He noted U.S. premium volume rose to 1.34 billion pounds($2.29 billion) last year from 1.28 billion pounds ($2.19 billion) in 1995.
The largest U.K. insurance company, Commercial Union P.L.C., saw pretax operating profits decline 12.8% to 444 million pounds($760.4 million) from 1995. The lower result was blamed on a deterioration in operating conditions in the U.K. market and a 41 million ounds ($70.2 million) increase in U.S. weather-related losses to 80 million pounds$137.0 million). Those weather claims helped increase U.S. underwriting losses to 132 million pounds($226.1 million) from 01 million pounds($173.0 million) in 1995. However, CU Chief Executive John Carter maintained that "the increasingly strong position of the group provides many opportunities to expand our business."
London-based Royal & Sun Alliance Insurance Group P.L.C., formed last year by merger, reported 1996 pretax operating profit of 706 million pounds ($1.21 billion), down 22.8% on a combined 915 million pounds ($1.42 billion) profit for the two companies in 1995. Like his counterparts at the other companies, Executive Deputy Chairman Roger Taylor said the year was marked by a record 96 million pounds ($164.4 million) of U.S. weather losses and continuing soft markets. Underwriting losses soared to 711 million pounds ($1.22 billion) from 191 million pounds($327.1 million).
Other significant factors affecting Royal & Sun Alliance were 117 million pounds ($200.4 million) of provisions against future U.S. asbestos and environmental claims, and a 32 million pounds ($54.8 million) negative effect of currency exchange rate movements over the year. However, the company said that if conditions remain as they are now, its capital position will continue to strengthen, and so it plans to seek shareholder approval to buy back up to 5% of its issued share capital.
Profits of Eagle Star P.L.C. also were adversely affected by provisions for U.S. pollution claims. Pretax profits fell in 1996 to 85 million pounds ($145.6 million) from 220 million pounds ($376.8 million) the previous year, mainly because of a 160 million pounds ($274.0 million) strengthening of reserves for U.S. environmental exposures from more than 30 years ago. The extra provision was made after an assessment by actuarial consultants Tillinghast-Towers Perrin.
Eagle Star, a unit of B.A.T Industries P.L.C., also increased its reserves for London market excess-of-loss spiral claims by 40 million pounds ($68.5 million). Underwriting losses were 96 million pounds, up 28 million pounds ($48.0 million) over 1995 losses. Apart from this, Eagle Star said "most markets remain very competitive. . .and there is very little evidence of rates hardening."
It said these conditions, combined with its determination to cease writing unprofitable business, led to a 12% fall in gross premium volume to 1.9 billion pounds ($3.25 billion).