Catastrophe Payouts Hit Brit Insurance Profits
By Thomas | Published March 02, 2011
The Lloyds of London insurer Brit Insurance reported that profits in 2010 were hit by high payouts on catastrophe claims resulting in pre-tax profits of £119.2 million (US$191.9 million) reflecting a fall of 30 percent compared to the £171.3 million (US$275.7 million) achieved in 2009.
Brit Insurance, which was bought by private equity firms Apollo and CVC Capital last year, said that profits in 2010 were adversely affected by substantial claims paid out during the year; the most notably claims arising from the earthquakes in Chile – which cost the firm £29.9 million (US$48.1 million) – and the September quake which struck New Zealand resulting in a £27.9 million (US$44.9 million) outflow of funds. The two events alone costing Brit Insurance a combined total of £57.8 million (US$.93.0 million).
However, Brit’s profit after tax improved by 26.2 percent to total £110.5 million (US$179.9 million) in 2010 – up from £87.5 million (US$140.8) reported in the previous year. There was a slight increase in written premiums of 1 percent in 2010 compared to a 4.8 percent uplift in 2009.
The US-based investment companies Apollo Global Management and CVC Capital Partners were attracted by the future potential in Brit Insurance’s balance sheet and strong market position, which were considered to present huge opportunities for the insurer; these factors prompted the takeover bid. The new owners acquired Brit for £880 million (US$1.4 billion) after their bid was accepted by shareholders in October 2010; the transaction was one of the biggest takeover deals completed in 2010.
Apollo and CVC Capital, who will take full control of Brit Insurance in March 2011, said that the steep decline in the pre-tax profit margin was primarily due to Brit’s high exposure to catastrophe risk coupled with a high number of claims and the low level of new written premiums during 2010.
Brit Insurance’s position was not unique as rival insurers have seen profits dented by high payout claims for catastrophic events occurring in 2010 – insurers such as Hardy and Beazley – which specialize in insurance coverage for large scale events, have experienced difficult operating conditions over the last year.
Earlier this year, Brit Insurance’s Lloyds of London competitors – Beazley Insurance – reported that the cost of the Chilean earthquake in February 2010 resulted in a minimum payout for them of £34.1 million (US$55 million) in claim payments; Beazley also incurred a cost of £21.7 million (US$35 million) as a result of the devastating earthquake in New Zealand in September 2010.
Brit Insurance has a presence in Europe, North America, Asia and Australia and is an international expert in the reinsurance market. The London based insurer, specializes in risks in sectors such as marine, contingency, aerospace, liability, accident and health insurance. Within the reinsurance sector, Brit is recognized as a multi-class and multi-territory portfolio insurer.
The major German based re-insurance specialist – Munich Re – reported that 2010 was one the worst years on record for natural catastrophes, with the effects of earthquakes, heat waves and floods contributing towards the £23 billion (US$37 billion) paid out in claims for insured losses during the year.
Natural disasters which took place in 2010 included the earthquakes in Haiti, Chile and Central China, floods in Pakistan and a heat wave in Russia. These devastating natural events during the last year influenced insurance company profits, with many insurers and reinsurers having high levels of exposure to these events.
Despite being less than a third way through 2011, large scale natural disasters have already hit Australia and New Zealand. At the start of the year devastating floods struck Australia and, more recently, another earthquake hit Christchurch in New Zealand – this one being even more devastating than the similar event in 2010. With political and social unrest now spreading across North Africa and the Gulf region – resulting in damage to infrastructure – global insurers and reinsurers would appear to be heading for another year of major payouts. Nevertheless Brit Insurance is well placed to move forward in 2011 with the new ownership set to exploit its reputation and strength in the insurance industry.
Risk management is the essential role for insurance companies. Consequently getting the risk-reward ratio correct is the key to profitable trading. While international insurers have been adversely affected by natural disasters in 2010 – which have impacted on profits during the year – the most important factor for insurance companies is to ensure year-on-year trading and new written premiums deliver results to achieve long term profitability.
Brit Insurance Holding
Brit Insurance Holdings is a general insurance and reinsurance group, provides commercial insurance products. The company offers accident and health, contingency, marine, aerospace, professional risks, trucking, commercial motor, liability, personal lines, property and packages, small business, war and terrorism, and horses insurance policies. It also provides agriculture, casualty, marine, aviation, and property reinsurance policies.
Apollo Global Management
Apollo Global Management (“Apollo”) is a contrarian, value-oriented investors in private equity, credit-oriented capital markets and real estate. Apollo raises, invest and manage funds on behalf of some of the world’s most prominent pension and endowment funds as well as other institutional and individual investors.
CVC Capital Partners Ltd
CVC Capital Partners (‘CVC’) was founded in 1981 and is a leading global private equity and investment advisory firm, with it’s headquarters in Luxembourg with a network of 20 offices across Europe, Asia and the USA.
Beazley plc, was founded in 1986 and is a specialist insurance company, provides underwriting and claims services. Beazley operates in five insurance segments: Marine, Political Risks and Contingency, Property, Reinsurance, and Specialty lines. The company has operations in Europe, the United States, Asia, and Australia.
Munich Re stands for exceptional solution-based expertise, consistent risk management, financial stability and client proximity. This is how Munich Re creates value for clients, shareholders and staff. It operates in all lines of insurance, with around 47,000 employees throughout the world. Especially when clients require solutions for complex risks, Munich Re is a much sought-after risk carrier. The primary insurance operations are mainly concentrated in the ERGO Insurance Group. ERGO is one of the largest insurance groups in Europe and Germany and 40 million clients in over 30 countries place their trust in the services and security it provides. In international healthcare business, Munich Re pools its insurance and reinsurance operations, as well as related services, under the Munich Health brand.
Hardy Underwriting is a specialist insurer and reinsurer underwriting in the Lloyds market and other worldwide locations. Through its subsidiaries, Hardy is in engages in underwriting insurance and reinsurance products internationally. Hardy is included in underwriting aviation, marine, and non-marine risks on reinsurance and direct basis.