Novae posts £7.4m loss in 'torrid' year

Lloyd’s insurer Novae made an after-tax loss of £7.4m in 2011, compared with a £24.6m profit in 2010.

The loss before tax was £6m (2010: profit of £36.2m).

The company’s combined ratio jumped to a loss-making 101.5% (2010: 91.4%) as natural catastrophes added 13.2 points to the ratio. Within this, the company’s Thai losses came in at $15m (£9.4m).

The overall result was also hit by low investment returns and increasing regulatory burdens.

However, Novae chief executive Matthew Fosh said his company had weathered the 2011 catastrophes better than its rivals.

“2011 itself was a torrid year for the (re) insurance industry, but there are a number of areas where Novae was able to demonstrably out-perform its peer group,” Fosh said. “Aggregate claims from property catastrophe events represent 23.9% of opening shareholders’ funds, a significantly smaller proportion than several of our peers.”

Novae also exceeded some analysts expectations. Shore Capital analyst Eamonn Flanagan had expected a deeper pre-tax loss of £12m from the company. Flanagan also praised Novae’s focus on return on equity but added: “We retain our concerns that this strategy is being driven against the backdrop of a weaker capital position.”

Fosh said Novae had made a number of improvements in 2011 including enhancing its capital management and growing its scale. Gross written premium increased 6% to £624m in 2011 (2010: £587.7m).

The company also progressed its efforts to reduce its dependence on the three biggest global brokers. “While recognising the key role the three major brokers play in the London subscription market, we have successfully built on the strong relationships we have with a number of specialist and local brokers in the UK and overseas,” Fosh said.

The company has also withdrawn from four lines of business over the past 12 months: management liability, UK direct fleet motor, regional professional indemnity and European marine reinsurance. “All but the last – which was small in gross premium terms – are longer tail classes whose track record had not delivered appropriate returns and for which the medium-term outlook was challenging,” Fosh said.

Novae is also continuing to reduce its participation in UK trade credit underwriting. “This process of business re-engineering has had some painful effects on headcount across the group but the board remains unwavering in its commitment to drive efficiency gains in a performance-led culture.” Fosh said.

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