Joint venture with supermarket hits profit in second year

Barry Smith, Ageas

Tesco Underwriting has made a profit in its second year of operation as well as propelling majority owner Ageas UK to new revenue heights.

The joint venture between Ageas and Tesco Bank made an £8.2m profit in 2011 after a loss in 2010 - its first full year of operation. The venture, of which Ageas owns 50.1%, was first announced in June 2009.

Ageas UK is now a £2bn business after Tesco Underwriting added £655.3m of gross written premium to Ageas UK’s top line in 2011. Ageas’s revenues were also boosted by a 15.2% increase in non-life GWP, a 47.5% increase in revenues from its retail broking division and an 89.4% increase in premiums at its fledgling life operation, Ageas Protect.

Overall, Ageas UK returned to profit on both a pre-tax and an underwriting basis. Profit before tax for 2011 was £105m, compared with 2010’s £24.8m loss. Within this, the non-life business swung to a profit of £75.9m from a loss of £32.2m. The total combined ratio, including Tesco Underwriting, improved by 9.6 percentage points to 99.9%. Excluding Tesco Underwriting, the combined ratio was 98.8%, indicating the young business is still exerting a small drag on underwriting profitability.

Ageas UK chief executive Barry Smith said: “The improvement is the combination of all of the businesses doing better.” He said the main driver of the better result was the underwriting improvement, and that investment income was “absolutely minimal”. “It is not a material change from one year to the next,” Smith said.

He added that the company had not seen any material change to its reserving position.

Ageas UK’s result was at odds with that of its Belgian parent, which made a loss of  €578m (£480m) after taking heavy write-downs on Greek debt.

Smith declined to comment on the group results or their potential impact on Ageas Insurance Ltd, but said, like its parent, the company was strongly capitalised, with levels exceeding requirements by 2.28 times.