Lloyd’s motor insurer reports £7.3m profit


Lloyd’s motor insurer ERS has made a profit of £7.3m in the first half of 2016, thanks in part to one-off gains in the company’s bond portfolio triggered the Brexit vote.

The first half profit is an improvement over the £2.8m loss the insurer made in last year’s first half and the £6m profit it made in the full year of 2015.

ERS first-half 2016 results

 H1 2016H1 2015Change (%)
Gross written premium (£m) 203.8 194.7 4.7
Underwriting result (£m) 0.4 -4.1 n/a
Investment income (£m) 6.9 1.3 430.8
Total profit/loss (£m) 7.3 -2.8 n/a
Key ratios H1 2016 H1 2015 Change (points)
Loss ratio (%) 69.9 69.5 0.4
Commission ratio (%) 15.7 16.3 -0.6
Expense ratio (%) 14.2 16.4 -2.2
COR (%) 99.8 102.2 -2.4

The main cause of the profit boost was a surge in investment income to £6.9m in the first half of 2016 from £1.3m in the first half of 2015.

ERS chief financial officer Katie Wade told Insurance Times that a big driver of the jump in investment income was the UK’s decision to leave the European Union, which pushed up the value of the bonds in ERS’s investment portfolio.

This is because Brexit vote has essentially made older bonds issued before the vote more attractive than newly issued ones.

Wade said: “[The impact of Brexit on bond performance] was definitely higher than we expected. The gains in the bonds in the last week of June definitely helped our results.”

ERS’s first half result was also helped by a small underwriting profit (see table). The insurer’s combined operating ratio was a just-profitable combined operating ratio of 99.8%. This was an improvement over the loss-making 102.2% reported in last year’s first half, and the same as the full-year 2015 COR.

Wade said the underwriting performance showed “slow and steady progress” towards ERS’s mid-term target of a 90% COR.

She said: “We are really now starting to see the impacts of those changes that we’ve made.”

ERS has just come through a period of heavy restructuring, which has included redundancies, a £20m IT overhaul and closing its old Brentwood headquarters.

The work is now showing up in the expense ratio, which fell by 2.2 points. The company has also shaved 0.4 points from its commission ratio, mainly though working more with smaller brokers.

In addition to being profitable, ERS is now growing. Gross written premium increased 4.7% to £203.8m in the first half of 2016 from £194.7m in the same period last year.