Brit opens books to Apollo

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Brit responds to new £10.75 a share bid as it posts profit

Brit has said it is opening its books to private equity bidder Apollo after a revised offer of £10.75 a share.

The offer values Brit at around £850m. Due diligence is expected to take a "number of weeks," it said.

The news came as Brit announced profit before tax excluding the effect of foreign exchange on non-monetary items increased by 12.2% to £72.8m from £64.9m during the same period last year. Profit before tax of £77.5m compared with a loss of £8.7m in 2009.

Gross written premium was down 13.4% at £851.5m from £983m due to “proactive management of the underwriting cycle” and is in line with the Group's focus on achieving upper quartile underwriting performance.

Combined ratio

Premium rate increases were 1.1%. The combined ratio excluding the effect of foreign exchange on non-monetary items was 96.5% up from 93.8%, including 7.1 percentage points for major claims (earthquake in Chile).

The claims ratio excluding major claims improved by 9.0 percentage points, offset by a 6.2 percentage point increase in the expense ratio due to lower premium volumes, business mix and the timing of certain expenses. Overall, the combined ratio excluding major claims improved by 2.8 percentage points.

UK changes

In the UK the withdrawal from Local Authority (Municipal) business and a significant reduction in Private Motor was offset by the continued growth in Brit Lite, which specialises in micro-SME commercial insurance, and now represents 14% of the UK portfolio, Brit said.

Dane Douetil, group CEO said: "Brit Insurance has made excellent progress during the first six months towards our stated goal of delivering upper quartile underwriting performance.

“This progress has been reflected in the improvement of our return on equity to 16.9% despite difficult underwriting and investment markets. Particularly pleasing has been the material improvement in our underlying claims ratio from 62.0% to 53.0% once the effect of large claims (Chile this year and Air France last year) has been removed.

“Our successful move to the Netherlands is already bearing fruit with a strong post tax result of £67.4m.

"Although Brit Insurance is well prepared for Solvency II the industry must guard against the direct and hidden costs of the ever increasing capital and regulatory burden in the post credit crunch world. Change is required but it must be relevant and proportionate.

“The economic outlook remains challenging but our established multi-product franchise, geographic spread and strong balance sheet position us well to outperform the market."

Financial highlights (2009 in brackets)

Gross written premium (£m) 851.5 (983.0)
Net written premium (£m) 649.2 (792.1)
Net earned premium (£m) 624.5 (743.3)
Investment return (£m) 57.5 (59.2)
Profit before tax excluding the effect of foreign exchange on non-monetary items (£m) 72.8 (64.9)
Profit/loss before tax (£m) 77.5 (-8.7)
Profit/loss after tax (£m) 67.4(-6.3)
Combined ratio 96.5% (93.8%)