Daily briefing: Tuesday – Equity’s road to recovery

Embattled insurer Equity Red Star won’t return a profit until 2012, chief executive Ian Foy told an IAG investor briefing in Sydney, Australia, today. He says the company, the sole UK underwriting arm of Aussie insurer IAG, has a plan up its sleeve that will help it break even next year.

Overambitious?

Taking into account the problems the Lloyd’s motor insurer has faced in the past 12 months, is this target slightly ambitious? Equity’s troubles have been well documented. IAG UK posted a massive A$121m (£79m) loss for the six months to 31 December 2010 and Equity was blamed for the bulk of losses in the division, which also includes broker Barnett and Barnett. It was forced to boost reserves by A$18m to cover bodily injury claims inflation.

The company today said it also expects the UK to make a loss in the second half of its financial reporting year, but smaller than the previous half.

Bodily injury black hole

In its last full-year results (to 30 June 2010), under previous chief executive Neil Utley, the UK arm posted a loss of A$355m, blaming the explosion in bodily injury claims, which it failed to anticipate.

The insurer said it had begun addressing the issue and hoped to restore Equity’s profitability quickly. However, this did not stop the FSA launching a section 166 investigation into its reporting systems.

More recently, Equity was forced to cut 27 jobs after an eight-week consultation period that put 185 jobs within the company at risk.

Restructuring plans

The business is restructuring and will unveil a new underwriting and distribution structure next month. But this doesn’t mean Equity’s woes can be forgotten. It is banking on the market improving and is pricing on the assumption of a 15% increase in bodily injury claims.

So what must Equity do to make a profit? It is likely to continue pushing up rates across all of its business, exit a number of broker relationships and focus only on profitable areas of the UK business – namely fleet, motorcycle and niche lines such as haulage.

Foy said: “I won’t predict the future but I will say in terms of our underwriting and governance that we are significantly more comfortable than we were 12 months ago."

IAG remains confident it can turn around its UK performance and all eyes will be on 2012 and the results of its profit improvement plan.

Henderson growth push

The ambitious Henderson Insurance Brokers is targeting Manchester as its next growth area. We revealed today that Henderson has a new branch manager for its Manchester operation – Paul Brookbanks from Jelf, which is likely to be one of the consolidators Henderson will look to attack in the region in an effort to gain ground.

Joe Henderson, the boss of the Leeds-based firm, is not afraid to stick his neck out when it comes to aggressive growth strategies. The Manchester market will no doubt be watching his plans in the region closely.

Danny Walkinshaw is digital news editor.