Groupama UK’s profits up 20% despite tough times

Groupama UK made a profit before tax and amortisation of £22.2m in the first half of 2012, up 20% on the £18.5m profit it made in the same period last year.

The insurance division’s combined ratio improved by 0.4 of a percentage point to 98.8% (H1 2011: 99.2%) as good performance in personal lines offset deterioration in commercial lines.

The solid overall performance comes amid continuing work by French parent company Groupama SA to sell the business, which comprises insurer Groupama Insurances and broking division GUK Broking Services. One GUK Broking company, Lark Insurance, has already completed a management buy-out.

It also comes during what chief executive François-Xavier Boisseau describes as “some of the most testing market conditions for years”, and after ratings agency Standard & Poor’s cut Groupama SA’s financial strength ratings to BB from BBB-. As the UK insurance company’s rating is based on that of its parent, the downgrade sparked concerns that commercial brokers would take their business from Groupama UK.

However, Boisseau hailed the support his company had received from brokers. He described the profit jump as “an excellent result” adding: “It is also a real testament to the strong support that we have seen from our broker partners and the sheer hard work and commitment of our people.”

Revenue dip

Revenue at Groupama Insurances fell by 4.7% to £200.7m (H1 2011: £210.6m). However, the company said revenues were only 1.4% below its targets, taking into account expected reductions from exiting unprofitable business in the commercial motor account, where revenues fell by 21%.

Personal lines revenues were down 3% to £143.9m (H1 2011: £148.4m), as the company changed the mix of business more towards non-standard specialty business.

Commercial lines revenues were down 8.6% to £56.8m (H1 2011: £62.2m), as volumes were constrained by “fierce competition” and “very poor trading conditions” as well as the planned 21% reduction in commercial motor.

The company added, however, that its commercial schemes business remained resilient, thanks to some business wins and e-trading activities.

Broking growth

GUK Broking’s revenue increased by 1.4% to £33.2m in the first half of 2012 (H1 2011 £32.7m). While the growth was small, Groupama described it as a “creditable result” given the recession in the UK.

The broking group’s EBITDA margin was 25.4%, but Groupama said profitability was marginally down because of the continuing effects of the weak economic environment.

‘Speculative at best’

Boisseau hit out at suggestions that Groupama UK’s results would suffer as a result of the changes and challenges it is facing.

“Some of the rumours about the performance of our business have been speculative at best and have not reflected reality,” he said. “As can now be seen by our performance to the end of June we have done very well in what have been challenging times. We were only marginally behind budget after six months and our bottom line remains well ahead of where we expected to be. We are now well placed to negotiate the second half of the year.”

Commenting on broker support after the rating downgrade of Groupama SA, Boisseau said: “We have been very transparent with our partner brokers about the strength and security of our business and the huge majority have demonstrated unwavering support since the sale was announced. Over the past six months or so we have all been very touched by the messages of support and encouragement that we have received from our broker friends. We have certainly learned who our friends are.”

Despite the downgrade of its parent, Groupama UK itself remains financially strong. Its solvency margin measured on a Solvency I basis was 218% as of 30 June, up from 174% on the same date last year.