Claims increase 18% as bad weather takes hold

Antonio Horta-Osorio

Lloyds Banking Group’s UK general insurance division’s profits dropped 30% during the first half of the year as the volume of claims increased 18%.

Underlying profit fell to £158m for the six months ended 30 June 2012 from £226m for the same period in 2011.

The combined ratio deteriorated to 80% in the first half from 73% a year earlier.

Broken down, home insurance income climbed 1% to £425m from £421m over the same period.

Payment protection insurance (PPI) income, however, decreased 35% to £46m in the first half of 2012 from £71m in 2011 due to the Group ceasing to write new business in 2010.

Claims rose to £233m from £198m, driven by an increasing number of property claims resulting from this year’s bad weather events, with April and June proving to be the wettest on record.

The cost of underwriting pet insurance for pets with pre-existing conditions added to the rise, but this was partly offset by lower unemployment claims.

Operating expenses decreased by 12% or £12m to £89m (2011: £101m), primarily due to continued savings and the focus on cost management.

The Group made a £641m loss in the first half of the year from £2.28bn in 2011.

Lloyds set aside a further £700m in the second quarter to compensate customers who were mis-sold PPI.

Lloyds chief executive Antonio Horta-Osorio blamed claims-management companies for inflating the costs. More than half of claims received from some firms were linked to insurance policies that didn’t exist, he said on the conference call. The lender has added 1,000 more people to process erroneous claims, he said.

“Mis-sold PPI policies are an industry legacy issue but by redressing those affected quickly we continue to do the right thing for our customers,” Horta-Osorio said in a statement. “We are on track to deliver our strategic aims and we are making significant progress with our financial targets.”