Fortis UK doing better despite half-year results, says Smith

Fortis UK chief executive Barry Smith has insisted that his company’s fortunes are improving despite a sharp drop in profitability and a worsening combined ratio in the general insurance business, Fortis Insurance Ltd (FIL), in the first half of 2010.

Fortis UK’s profit before tax slumped almost 68% to £8.4m from £26m in the same period last year. FIL’s combined ratio increased 2.1 points to 106.5% from 104.4%.

The result was due to poor performance in the private motor book, weather-related escape-of-water losses at the beginning of the year, £1.5m in volcanic ash claims and a £9.6m decline in realised capital gains compared with the first half of 2009.

Some £3.4m in set-up costs for Fortis’s new partnership with Tesco Bank were included in the first-half 2010 results.

Smith contended that year-on-year comparison is distorted by the fact that the company had not yet started responding to rising bodily injury claims in the motor book in the first half of last year.

“The half-year results last year were probably not fully reflective of the early way in which we picked up the increase in injury costs for motor,” he said.

Smith said Fortis pushed through average rate increases of 20.9% in 2009, and has boosted them by 13.6% in H1 this year. The company has not had to raise reserves to counter rising claims.

Smith also pointed to the fact that Fortis UK’s performance had improved in the second quarter of 2010 compared to the first quarter.

The company made a profit of £11.5m in the second quarter compared to a loss of £3.2m in the first, while the combined ratio improved to 102.9% from 110.2%.

Smith said the second quarter benefited from both the lack of weather-related claims and the effects of the underwriting actions on the motor book.

Smith also denied that the company’s rapid expansion in commercial lines, when rates are generally softening and many competitors are pulling back, is cause for concern.

FIL’s commercial lines gross written premium increased 49.8% to £80.2m from £53.5m.

Smith said: “Historically, the profit flows from commercial lines have been very healthy. Historical profitability is plainly being put under pressure.”

He added: “We are in a different position in that we have a strong, low-cost, high-quality business model.

“We are not relying on the super-profits that were previously flowing from some of the commercial lines.”