Equity Red Star racked up £37.4m loss in 2012

Troubled Lloyd’s motor insurer Equity Red Star made a loss of £37.4m for the year to 30 June 2012.

However, this is nearly half of the £73.8m loss the company made in the previous financial year, a Companies House filing reveals.

Equity Red Star, which is currently owned by Australian insurer IAG, shrunk its underwriting loss to £4.6m in its 2011/2012 financial year from £100.9m the previous year. This produced a combined operating ratio of 103.5%, an improvement of 28.9 percentage points on 2011’s 132.4%.

As a result of the losses, Equity Red Star had to make an £89.3m call on its funds at Lloyd’s – funds that syndicates are required to lodge with the market as security to support their underwriting. This is 41% lower than the £151m cash call from the syndicate in 2010/11, however.

Equity Red Star received a subordinated loan of £33m in November 2011 from sister company Equity Insurance Group (EIG) to help purchase adverse development reinsurance cover. This most recent loan takes the total amount of outstanding subordinated loans owed by the company to more than £340m.

Australian parent IAG is in the process of selling Equity Red Star to private equity house Aquiline Capital Partners. The sale is expected to be completed in the first half of this year.

IAG decided to sell the company after it made a string of losses caused by under-reserving for motor bodily injury claims.

Equity’s reserving practices prompted a Lloyd’s investigation. This resulted in both Equity Syndicate Management and former chief executive Neil Utley being censured by the Lloyd’s Enforcement Tribunal.

Continued improvement

IAG’s most recent accounts show that there has been further small improvement in Equity Red Star’s performance since the year to 30 June 2012. In the six months to December 2012 the unit made an insurance loss of A$11m (£7.6m). This compares with an insurance loss of A$13m for the year to 30 June 2012.

An insurance loss is underwriting loss plus investment result.