Chartis UK MD hails 2011 results despite 89% profit drop

Chartis Europe Limited made a profit after tax of £11.3m in the year to 31 November 2011, down 89% on the £101.1m it made the previous year.

However Chartis UK managing director Nicolas Aubert hailed the results as a “robust performance in 2011 in what continue to be difficult economic conditions”.

The company, formerly Chartis Insurance UK Limited, narrowed its underwriting loss to £51.7m (2010: loss of £65.3m) and improved its combined ratio to 103.6% (2010: 104.2%).

“We saw encouraging results in our core underwriting business, where losses improved by around 20%, driven by better pricing discipline and risk selection,” Aubert said  in a statement.

However unrealised investment losses of £6.9m in 2011, compared with unrealised gains of £78.6m the previous year, cut profit before tax by 46% to £51.8m (2010: £95.4m) . On top of this, a hefty 2011 tax charge of £40.6m, compared with a £5.7m tax benefit in 2010, hit the after tax result.

A 5% drop in gross written premiums to £2.15bn (2010: £2.25bn), plus a 1.7% increase in operating expenses to £425.8m (2010: £418.5m) also contributed to the result.

The heavier tax charge was caused by the reallocation of group losses to other AIG UK companies, thus increasing the taxable profits of Chartis Europe Limited.

“Although our net profits post tax fell this was due in large part to the change in the treatment of group tax losses as well as the impact of asset valuation on our investments,” Aubert explained. “Importantly profits before tax and net unrealised gains and losses on investments increased from £16.8m in 2010 to £58.8m in 2011.”

While 2011’s 103.6% combined ratio is an improvement over 2010’s, it is still firmly in loss-making territory. However, Aubert said the high ratio is in part down to expenditure on business improvements.

“Last year we made a considerable investment of around £50m in a number of major projects that will deliver process efficiencies,” he said, adding that one of the projects was the restructure of the European operations.

“The 2011 results indicate that a lot of hard work has gone into positioning the business for future growth. For example, if we strip out the costs associated with major projects the combined ratio would be less than 100%,” Aubert said. “We are therefore well on our way to underlying profitability.”