Electra’s Davies stake loses a third of its value

The value of private equity firm Electra’s 46.2% stake in loss adjuster Davies Group has dropped by £11.9m, or 33%, in the first year of ownership.

Electra bought the stake in Davies in September 2011 for £35.8m. However, Electra’s full-year results show that the value of the stake had fallen to £23.9m as of 30 September 2012.

Electra said in its results statement: “Davies’ profits for the year to July 2012 have been adversely affected by the reduced level of weather based insurance claims due to the mild weather through much of 2011 and 2012, and the loss of a major contract in a competitive tender.”

While it described the situation at Davies as disappointing, the private equity firm said it viewed it as “a short-term issue” and was upbeat about the loss adjuster’s prospects.

The statement said: “[Davies] has continued to win new clients and diversify its contract base and importantly has made significant progress in its entry into the commercial and liability claims markets which are not correlated to weather patterns.”

Davies markets director Darren Coombes acknowledged that claims frequency was lower and that Davies had lost clients, including NFU Mutual and “some” Zurich business.

However, he added that the company had added between eight and nine clients over the past 12 to 18 months, including Groupama, Barbon, Liberty, Sterling, Jelf and Allianz’s liability business.

Coombes said: “In revenue terms we have won more work than we have lost across our business.”

Coombes added that the company was still turning a profit despite the setbacks. He said: “We probably won’t be as profitable as we were the year before, but we are still profitable.”

Davies Group made a profit of £3.4m in the year to 31 March 2011. The company has since changed its reporting period, and its financial year now runs to 31 July.

Coombes said Davies had invested “millions” of pounds in systems ovber the past 12 to 18 months and was transferring its four legacy systems onto a single new system. Coombes said: “This has significant advantages for us, our clients and our policyholders.”

The loss adjuster is also looking at acquiring teams or companies in the major loss area. Coombes said: “We are looking at a couple of teams and businesses, but they have got to be the right fit.”

Davies was the worst-performing of Electra’s direct unlisted investments in the year to 30 September 2012.

By contrast, the value of Electra’s 7% stake in motor insurer esure – its only other insurance-related investment – increased by £19m, or 47%, to £58.9m.

The news comes amid turbulent times for Davies. Chief executive Charles Crawford and chief operating officer Andy Webb left the company in October. Davies is being run on an interim basis by deputy chairman Mark Chapman and the company continues to seach for a new permanent chief.

Webb had only been at the loss adjuster a matter of months, having joined from Legal & General in June.

However, Davies has also recently made additions to its senior team, including head of fulfilment John Watson, who joined in November this year.