With UK flooding being the only major source of claims, many Lloyd’s managing agents have reported record performances. James Dean reports
Despite the ongoing struggle to move the market’s technology into the 21st century, listed Lloyd’s managing agents have had a profitable year – some breaking records as interim results continue to roll in through the autumn. UK flooding was the only major source of claims in an otherwise quiet first half.
Downturns were attributed to continued softening outside the US catastrophe market although, notably, companies in the UK motor market reported increasing premiums.
Those with US-based units suffered from the continued decline of the dollar over the first half.
The greatest increase in pre-tax profit came from Heritage, which posted £10.5m compared to £3m for the same period last year – an increase of 250%.
It attributed its success to a strong performance from its new underwriting teams, excellent market conditions for the business and a benign claims season.
Heritage also claimed second spot for gross written premium (GWP) increase, with a 78.3% improvement.
Atrium’s record interim profit of £23.8m was triple that of 2006, and the company also took the top spot for improved combined ratio, with an 18 point drop from 90% to 72%.
Atrium attributed its success to the favourable claims climate, releases from the 2005 hurricane season, improved profit commission, and improved investment income.
Ariel will complete its takeover of Atrium later this year.
Charles Coyne, analyst at KBC Peel Hunt, believes that Atrium’s success stems from its focus on the Lloyd’s market with no non-Lloyd’s operations. “Atrium has succeeded because it has a very good syndicate in 609. Also, it owns only 25% capital, and I think that the less capital you have, the more likely you are to get a return on it,” he said.
Omega and Beazley reported profits had doubled, with Omega topping the table for improved GWP with a 112.9% increase from $81.3m to $173.1m.
Omega cited a reduction in its exposure to under-priced non-US markets – and therefore minimal exposure to UK floods – as a reason for its success. Analyst Numis reiterated its ‘buy’ recommendation and target price of 180p for Omega, and upgraded Beazley to an ‘add’ recommendation, with a target price of 200p.
Hardy, Amlin, Chaucer, Hiscox, Highway and Novae all reported increased profits, while Brit’s remained roughly level.
At the other end of the scale, Advent’s profit declined 36% to £6.7m, which it blamedblamed on the group taking £4.1m less in foreign exchange gains: the company writes 75% of its premiums in the US.
However, Numis reiterated its ‘buy’ recommendation and target price of 30p.
Catlin and Kiln also reported declining profits, with Catlin citing $23m in integration costs following the acquisition of Wellington and $30m from reinsurance losses related to the UK floods.
Numis recently downgraded its recommendation from ‘buy’ to ‘add’, saying that Catlin’s interim results were “weak” and “did little to improve confidence in the outcome of the Wellington transaction”. Target price fell from 585p to 520p.
Kiln blamed a one-off £4m start-up expense in Bermuda for its profit slump. Numis was nevertheless impressed with the company, and upgraded its recommendation from ‘add’ to ‘buy’, hinting at a “prospect of near-term strategic developments [by Kiln] outside Lloyd’s”. Target price was reduced from 145p to 135p.
Looking to the second half of the year, KBC Peel Hunt’s Coyne mentioned Chaucer, Hardy, Heritage and Kiln as potential targets for take-over, with interest from Bermuda being key.
Combined ratio deterioration
Atrium: -18 points
Hiscox: -9.8 points
Amlin: -8 points