DAS makes £11m loss after claims 'avalanche'

Legal expenses insurer DAS will not return to profit until 2011 after making a larger-than-expected loss for the full year of 2009, according to chief executive Paul Asplin.

DAS made an after-tax loss of £11.2m in 2009, compared with a profit of £5.7m in 2008. According to press reports at the beginning of this year, Asplin was expecting a loss of around £10m for 2009. The company did not pay a dividend for 2009, having paid out £3m in 2008.

The insurer strengthened reserves by £24m in 2009, the bulk of which was to cover a sharp increase in employment-related claims under DAS’s ‘family business’ – a legal expenses protection sold as an add-on to household policies. “We saw an increasing trend over a period of time, but it became something of an avalanche in the end,” Asplin said. “It reflected the huge increases in numbers of cases being filed at employment tribunals.” He added that the increase in claims was likely to be recession related.

DAS’s claims incurred, net of reinsurance, jumped 21% to £71.2m from £58.9m. The situation was made worse by a £9.3m year-on-year reduction in the non-technical result, largely owing to £5.5m of unrealised investment losses in 2009, compared with unrealised gains of £3.5m in 2008. “Had the investment market remained stable, we would have only incurred a small loss,” Asplin said. “We had a double whammy of a huge increase in claims costs and a collapse in investment income at the same time.”

DAS has moved to tackle the increased claims with rate hikes, which Asplin described as very significant in some cases. “We have had a good solid increase in premium,” he said. But he added that because of the nature of add-on business, which is written on a scheme basis, it takes two years for rate changes to show up as earned premiums on insurers’ accounts. Rate changes have to be negotiated with the retailer handling the scheme, which takes around 12 months to filter through, and then it takes another year for the increased premiums to be earned.

As a result, Asplin expects DAS to make a loss of around £2m for 2010 and return to profit in 2011. “While we have started the process, there was no chance whatsoever of adjusting prices in 2009 to offset the dramatic increase in frequencies,” he said, adding that DAS has also changed its claims handling process in response to the losses.

Subscriber Exclusive: Will the UK legal expenses add-on model go up in smoke?