The chief executive of Brit Insurance has moved to downplay the exposure of the Lloyd’s of London syndicate to mounting competition in the industry ahead of an expected £900m flotation.
Mark Cloutier warned that the existence of smaller underwriting houses may be under threat from the pressures in the sector but argued the size and nature of Brit’s operation kept it well insulated.
He was speaking as the former FTSE 250 company, whose private equity owners are eyeing a return to the public markets, disclosed the results of its first full year as a dedicated Lloyd’s of London insurer.
A relative lack of big catastrophes helped Brit report a “combined ratio” – claims paid and expenses incurred as a proportion of premiums – of 85.2 per cent, which like some of its listed peers was its best result on record.
The company, which has hired former Lloyd’s of London chief executive Richard Ward as its new chairman, also released £57m of reserves built up in prior years.
Although investment returns dipped from £88m to £55m, pre-tax profits at Brit still rose from £100m in 2012 to £113m last year.
Mr Cloutier highlighted that Brit “leads” – or determines the pricing and terms of insurance risks that are spread between syndicates at Lloyd’s – more than half the business it writes.
Insurance brokers are cutting out those smaller Lloyd’s syndicates that tend to follow the policy terms determined by the leaders, by automatically allocating a chunk of the business they place to capital providers such as Berkshire Hathaway.
“If that’s what you do, you’re probably quite vulnerable to being commoditised out of existence,” said the Brit chief executive.
He argued that the type of specialist insurance Brit writes makes it less exposed than other insurers to the rush of capital into the sector from outside sources – especially into natural catastrophe reinsurance.
About three-quarters of Brit’s operation is “speciality” business – a diverse mix, from commercial property and marine insurance to event cancellation and fine art – and the remainder reinsurance.
Mr Cloutier described market conditions as “choppy” but said Brit, owned by private equity groups Apollo and CVC, would look at cautiously growing the business on an “opportunistic” basis.
“We’re underweight in some of the larger emerging economies,” he said, adding the company was looking at expanding in South America.
The chief executive said a similar level of growth in the coming years to 2013 – when Brit wrote £1.19bn worth of premiums before paying from reinsurance, up from £1.15bn the previous year – “would be reasonable to expect”.
Tom Carstairs, analyst at Berenberg, said: “As much as anything, the appointments they’ve made over the past 12 months make it seem like they’re looking to IPO. It’s not a bad time to be looking.”
However, the owners, who were paid a £100m dividend by Brit last year, have yet to make a firm decision and may yet opt for a trade sale.
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