Decision to take £32m charge was based on expectations of future profitability
Ageas UK’s decision to write down the value of its retail broking operations was a precaution rather than a reaction, according to chief executive Andy Watson.
Ageas UK took a £32m one-off hit to its 2012 profits after reducing the broking operations’ collective goodwill value. The move followed a 23% drop in profit at the operations in 2012.
Speaking to Insurance Times following the release of Ageas UK’s 2012 results, Watson said: “The write-down was a prudent measure on our part. It is something we had the option to do. It is related to a view on future levels of profitability but it is a prudent move.”
Watson said the broking revenue and profit had been affected by heavy competition as well as the introduction of anti-fraud measures.
The chief executive said Ageas’s brokers, which include RIAS, Kwik Fit Financial Services and Castle Cover, had worked with their insurers on maintaining pricing discipline rather than pushing rates down, which meant lower business volumes.
He commented: “We have taken a deliberate view not to chase prices down. We could have grown those books and we could have potentially grown short-term profitability but we have chosen not to reduce prices.”
Equally, the anti-fraud measures have led to Ageas’s brokers turning down more business.
However Watson stressed that the retail broking division would continue to be a “major component” of Ageas UK’s performance. The brokers accounted for around a quarter of 2012 profits.
Watson said: “We certainly think the current level of profit is sustainable. We would be targeting for that to increase in the future.”
The dip on broking profit was the only blemish on an otherwise strong year for Ageas UK. Revenues hit the £2bn mark, while profit before exceptional items increased 11% to £82.9m (2011: £74.7m).
Ageas was cushioned from the £32m retail write down by a one-off £50.9m gain from its purchase of Groupama UK. The gain arose because Ageas paid less than book value for the broker.