HSBC warning over claims uncertainty

HSBC Insurance (UK) Ltd has made a profit after tax of £5.3m in 2010, its first full year in run-off. This compares with an after-tax loss of £128.7m in 2009.

However, the motor insurer warned in a filing with Companies House that it faces greater uncertainty in 2011 because of rising bodily injury claims, the Ministry of Justice reforms proposed under the Jackson review and the potential for some claims to be settled using periodic payment orders (PPOs).

HSBC Insurance (UK) closed to new business on 2 September 2009 after pulling out of acquisition talks. The company’s pre-tax profit for 2010 was £7.4m, compared with a loss of £179m in 2009.

It attributed the profit mainly to investment income and the release of surplus expense run-off reserves.

Investment income was £3.4m in 2010, compared with £12.7m in 2009. Net revenues were £30.1m in 2010 versus £179.5m. But net claims incurred came in at only £15.7m, compared with £315.9m.

Part of the reason was £104.3m of surplus reserve releases in 2010, compared with reserve strengthening of £129m in 2009. Outstanding claims stood at 14,151 at the end of 2010, compared with 50,403 at the end of 2009.

Actuarial firm EMB, now part of Towers Watson, completed a series of quarterly claims reserve reviews in 2010, the last of which was based on September 2010 data. HSBC said the EMB projected results were on a best-estimate basis with no allowance for prudence or optimism.

“There are a number of factors that affect the uncertainty of these results,” HSBC Insurance’s Companies House filing read.

“In particular, the uncertainty surrounding the social environment in relation to injury claims, the Ministry of Justice reform changes and the possible claims to settle as PPO awards are greater this year than the levels of uncertainty exhibited in the past.”