Motor insurer faces its ‘final chapter’ but is not yet considering the possibility of run-off

Struggling motor insurer Zenith aims to secure a sale by the end of the year, while warning that rivals will face similar problems unless they “rapidly and aggressively” increase their rates.

Parent company Guardian Holdings’ chief executive, Jeff Mack, said he was in talks with potential buyers and was confident of securing a deal by the end of the year, as revealed by on Monday.

Mack refused to comment on market speculation that Zenith chief executive Peter Austin was preparing a management buy-out.

Mack said: “The plan is to get a sale in process by the end of this year. We hope to have an agreement in place. We have active negotiations going on; we are in discussions with a couple of parties.”

When asked whether a failure to clinch a deal would lead to Zenith being placed in run-off, Mack said: “We haven’t decided that. We believe we will sell it as an active ongoing company.

“At this point, that is not an option we are thinking about.”

One source said that any buyer would have to quickly cut back the business.

The source said: “It writes £130m of business; if you could salvage £50m of that, it might be worthwhile.”

Zenith made a £5.2m loss on its insurance operations during 2008, but came out with a £392,000 profit for the year, largely thanks to £6.3m in investment income returns, its 2008 company accounts reveal.

In the accounts, Zenith also says other insurers have masked declining performance through large reserve releases, adding: “It is unlikely these releases can be sustained, thereby increasing the pressure on competitors to increase rates more rapidly and aggressively.”

The company is also appealing in the UK against an attempt by HM Revenue & Customs to claw back more than £2m in taxes.

Zenith’s problems have led to Guardian taking a huge hit on its balance sheet by writing down the goodwill of Zenith. This means that the balance sheet value of Zenith is effectively nothing.

Guardian chairman Arthur Lok Jack, speaking in its third-quarter interim report last week, said: “We have taken the tough but necessary decision this quarter, to write the final chapter of the Zenith story.”

Read analysis: A warning to motor insurers