LV= motor profitability now ‘where it needs to be’

John O'Roarke

Targeting a 100% combined ratio in motor business is a thing of the past, according to LV= general insurance managing director John O’Roarke.

“The days of running at 100% as a target because you could then make a profit on the investment income are no longer with us because investment returns are so poor,” O’Roarke told Insurance Times after LV= reported its results this morning. “Everybody is going to have to be writing well below 100%.”

LV=’s general insurance combined ratio for 2011 came in at 97.7%, a big improvement over 2010’s loss-making 104.2%. Profit before tax doubled to £70m from £35m. However, investment returns slumped to 2.8% from 5.7%.

O’Roarke declined to give precise numbers for the profitability of LV=’s personal lines motor book, but said the combined ratio was roughly 96% – better than the company wide one. “Motor profitability is where it needs to be now,” he says.

He pointed out that the companies that have reported results so far have posted motor combined ratios in the range of 95% to 100%, which could indicate a strong improvement industry wide.

“It looks as though the industry might move from 122% combine in 2010 down to 100% this year,” O’Roarke said. “I don’t think the market results have ever improved by so much in one year. But it had to happen. there was so much pressure and so many negative influences that the rate increases we have seen just had to happen to get the industry back on to a sound footing.”