Third full year of trading for Ageas joint venture

Tesco Underwriting has shrunk its book by a quarter and improved its combined operating ratio (COR) after cutting unprofitable business.

Gross written premiums at the company, which underwrites Tesco branded car and home insurance policies, fell 24.9% to £443m last year.

Tesco Underwriting said: “The decrease in premium reflects the competitive market and focus on maintaining prices to maintain profitability and support return on capital.”

Pre-tax profit shrank from £28.9m to £14.8m in the period, but COR improved from 103.1% to 100.9%

“The decrease in profit between years reflects the focus on strengthening underwriting in the company’s third full year of operation,” the company said.

Tesco Underwriting is a joint venture between Ageas, which holds a 50.1% stake, and Tesco Bank, which owns 49.9%. All of the underwriting risk sits with Tesco Underwriting.

Tesco completes its own underwriting and uses Ageas staff and expertise to help with claims.

Tesco Bank is owned by Tesco, which has been shaken by revelations that it overstated its first half profit by £250m.

The grocer’s value has plummeted by £4bn since the revelation last month.

Asked if Tesco could sell its banking operation to improve its balance sheet, Shore Capital head of research Clive Black said: “I would be surprised if they decided to divest their insurance arm and most certainly not from a position of weakness. That said, let’s see what happens.

“A decision would naturally involve Benny Higgins, the chief executive of Tesco Bank, one of the better performing elements of the troubled group.”