O’Roarke warns of more modest figures: ‘we won’t keep growing at 37% a year,’ he says
LV=’s general insurance business is hoping to top last year’s “small” £7m profit, but is expecting more measured growth than in the first six months of 2010, says managing director of general insurance John O’Roarke.
“This year it will be a much more substantial figure. We have entered a very healthy stage of profitability.”
Premium income at LV=’s general insurance unit surged 37% to £546.4m in the first half of 2010 compared with £397.5m in the same period last year.
Direct business was up 20% to £245.8m from £204.4m, while broker business increased 56% to £300.6m from £193.1m.
The combined ratio fell to 101.9% from 103.8%. The company does not report a half-year operating profit.
However, the market should expect more modest premium income growth in future.
“We won’t grow at 37% per annum,” O’Roarke said. “This has been an unusual year. I would expect growth rates to normalise more in the range of 10% to 20%.
“We’re expecting to have several good years of profitability ahead of us because the market has become more disciplined.”
He said the sharp increase in motor rates was one of the reasons for the unusually high growth in the first half of the year. Rates had increased 25% over the past 12 months, with average earned premiums up between 12% and 15%.
Some competitors’ appetite for the business had diminished, which allowed others to pick up the business, he said. “Some of the rate increases in the market have been designed to shed business.”
In addition to the rate improvements, profitability also would be driven by the business’s increasing maturity.
“One of the challenges for us over the past four years as we built up the business was the huge amount of new business strain: the business in its first year was significantly less profitable – a combined ratio difference of about 20-25 percentage points,” he said.
“But as that new business becomes renewal business and once you get four or five years into the growth phase, the profits start to come through.”
LV= has not yet benefited from the decision of rival insurer NIG to close its personal lines book as the withdrawal has yet to take effect. “I would expect that we would take at least our normal market share,” O’Roarke said.
“But it is going to be interesting to see how the market absorbs the business because there has been a capacity issue. As rates have gone up so strongly, some insurers’ appetite for the business is fairly saturated.”