Chief executive Fearn admits failure to quantify liability

MMA, the broker-only insurer, has a £4.9m deficit in its staff pension scheme.

The shortfall means the scheme's funds currently cover only 64% of the benefits it expects to pay out.

Existing members among the company's 297 staff can continue to belong to the scheme, but it closed to new members on 1 January.

Chief executive Garry Fearn said the defined benefit scheme had become a "millstone" for the Reading-based company.

"We were running a liability that we were unable to quantify," he said.

"It was just becoming a large millstone to carry."

Despite the company making a £175m top-up payment last year, increasing its rate of contributions to 15% from 9% and receiving a tax credit of £1.5m, it produced a total liability in the company books of £3.4m.

The deficit reflects last year's stock market crash, a year ago the fund was worth 102% of its liabilities.

MMA's financial results also suffered from poor investment returns that threatened to overshadow a strong underlying business performance.

The company turned in a pre-tax loss of £2.8m for 2001, down from a profit of £3.1m for 2000.

It saw the value of its investment portfolio decrease by £9.2m and suffered a £1.1m loss on selling shares during the year.

Its total investment return was £1.5m, down from £8.7m in 2000.

This effectively wiped out its best-ever operating result, which produced a profit of £9.1m, up from £7.9m in 2000.

MMA's investment portfolio is held in a tracker fund that follows the fortunes of the stock market.

Its losses were partly due to companies dropping out of the top 350 stock exchange listed companies, triggering their sale from the portfolio.

Despite the poor performance, the investment strategy would not change, according to Fearn.

He said: "We firmly believe investment is for the long term and this structure has served us very well over time.

"Now isn't the time to get out of equities."

Gross written premiums were up 20%, to £162.8m from £135.6m in 2000.

The company paid particular attention to growing its book of direct motor business.

It wrote £101.4m of motor in 2001 - compared to £84.4m in 2000. Its direct fire and other property damage writing was £38.2m in 2001 compared to £28.3m in 2000.

Its expense ratio of 8.3% reflects a slick operation and its overall combined ratio improved to 101% from 104%.

Fearn said: "Our break even figure is considerably north of that and that more than meets our target return on equities.

"It's a pretty satisfactory result in what for some was a very difficult year."