Sharp drop in investment returns offset underwriting improvement

LV=’s general insurance business made a profit before tax of £77m in 2013, down 29% on the £109m it made in 2012.

The main cause of the drop was a 41% fall in investment returns to £66m (2012: £112m).

That masked an improvement in LV=’s underwriting results. Underwriting profit tripled to £15m (2012: £5m) and the insurer’s combined operating ratio improved by 0.8 percentage points to 98.9% (2012: 99.7%).

LV= attributed the improved underwriting result to fewer home insurance claims despite the recent flooding, reserve releases of £41m that reduced the COR by 2.8 points, and “tight cost control” in the company’s core motor business.

The improvement came despite falling motor rates as insurers responded to last year’s legal reforms with price cuts.

LV= general insurance managing director John O’Roarke said: “2013 was a challenging year for UK general insurers as motor rates continued to weaken and investment returns remained subdued in line with low interest rates.

“Despite these conditions, our general insurance business delivered continued growth in target market segments and we now have 4.4 million in-force policies across an increasingly broad range of product lines.”

LV= had 4.1 million in-force policies in 2012.

Price cuts

O’Roarke said that “improved pricing capability and claims management” allowed LV= to reduce average motor rates by 9%.

However, he added that the company had been disciplined. He said: “The benefits of the legislation have however been slow to materialise and it now appears that the market has over-estimated the level of price reductions that might be justified.

“As a result of these unduly competitive market conditions, we chose not to chase unprofitable business and are therefore reporting a small reduction in motor premium income. We believe market rates are likely to readjust to more sustainable levels in 2014.”

Looking ahead

O’Roarke noted the heightened level of regulatory attention the insurance industry attracted in 2013.

He said: “We continue to work closely with our regulators and in-house risk team to ensure that LV= is well positioned to deal with any forthcoming legislative and regulatory changes that may impact our business.

“I am confident that these capabilities will position us well to secure continued profitable growth in 2014 and thereafter.”