L&G posts £17m profit after axing brokers

Legal and General’s drive to flush out unprofitable broker business helped to turn a £2m loss in general insurance in 2008 into a £17m operating profit last year.

General insurance managing director Peter Graham said the home insurer had axed a small number of brokers and worked closely with other partners to draw in the sort of business it wants.

L&G ramped up rates by between 5% and 6% in the broker book, while the overall business went through increases of about 3% to 3.5%.

Graham said: “Corrective action was taken in 2009. Now in 2010 it is about managing those accounts on a granular basis, with the onus on hitting near our targeted combined operating ratio.”

Gross written premium dropped from £296m to £273m. Combined operating ratio improved from 108% to 96%.

Graham said that investment income performance picked up in the second half of last year, also contributing to profits.

Finally, he said the three-year deal with Merlin Claims, to improve claims handling and delivery, had started to benefit the firm and would continue to do so in 2010. The Merlin deal, signed in April last year, was triggered by a customer service review.

Elsewhere in the business, L&G said its plans for a motor distribution business had taken a back seat, but were still on the agenda for this year.

L&G is lining up a panel of insurers to underwrite motor products. It left the motor insurance business three years ago, but intends to come back to the sector as a distributor.

At a group level, L&G made a £1.3bn profit, exceeding City targets of £1.1bn. The life and pensions giant slashed spending and reduced the workforce by 17% in the last year. Chief executive Tim Breedon said: “The results demonstrate the significant progress we continue to make in transforming the group into a lower-cost, capital-efficient, cash-generative business.”