Discount rate change only had small impact on Esure profit

Esure profit

Esure’s profit has jumped 18% in 2016 despite many of its peers suffering profit hits from the cut in the personal injury discount rate to -0.75%.

But the insurer’s home insurance business, which accounts for 14% of the company’s gross written premium, made a loss because of worse-than-expected weather claims and having to pay £2.9m to the Flood Re levy.

Esure 2016 results at a glance

 20162015change (%/points)
Profit (£m) 80.5 68.2 18.0
GWP (£m) 655 550.3 19.0
COR (%) 98.8 97.8 1.0
Profit (£m) 8.9 6.7 32.8
GWP (£m) 563.7 461 22.3
COR (%) 98.1 98.4 -0.3
Profit (£m) -2.4 4.2 n/a
GWP (£m) 91.3 89.3 2.2
COR (%) 102.9 94.9 8.0

Esure profit jumps

Esure made an underlying profit of £80.5m, up 18% on the £68.2m it made in 2015. The underlying profit excludes gains that the company made in both 2015 and 2016 from fully acquiring and subsequently separating out price comparison site Gocompare.

With these gains added back in to both years, Esure made a profit after tax of £269.2m (2015: £121.9m).

The discount rate cut only shaved £1m from Esure’s profit after tax. The company had already reserved to account for the rate being lowered to 0% as of December 2016. Thanks to its reinsurance protection, the additional cost of reserving to account for a -0.75% rate was limited to £1m.

The company said: “Our low risk approach to underwriting and conservative reinsurance programme mitigated much of our exposure to the change in the Ogden discount rate and leaves us well placed within the market compared to our peers.”

The company was also able to grow gross written premiums by 19% to £655m (2015: £550.3m).

Esure’s motor business, which accounts for the bulk of its gross written premium, had a good year. The business’s trading profit increased by 33% to £8.9m (2015: £6.7m) thanks to recent motor price increases starting to earn through, and the combined operating ratio (COR) held steady at 98.1% (2015: 98.4%).

Esure’s profit also benefited from a big jump in investment returns to £18.1m from £6.1m, and a 9% increase in trading profit from non-underwritten additional services to £60m (2015: £55.1m). Additional services income includes policy administration fees and instalment income.

Home loss

But the home business made a trading loss of £2.4m (2015: profit of £4.2m) after it was hit by £6.6m of weather claims (2015: £4m). Esure said this was £3.2m higher than it had expected to incur in the year.

The company also had to pay £2.9m to the Flood Re levy.

The claims and levy pushed Esure’s home COR into loss making territory at 102.9% (2015: 94.9%).

Overall, Esure chief executive Stuart Vann was pleased with the results.

He said: “We are now in full growth mode.

“In 2016 we have delivered strong growth in premiums and profitability, and have provided more quotes to a wider number of customers through our footprint expansion programme. This gives us great confidence to deliver our ambition of 3 million in-force policies by 2020.”