Novae profits unaffected

Lloyd’s insurer and potential buyer of Chaucer, Novae announced close to record pre-tax profits of £40.2m, down from the record 2007 £41m.

Highlights (2007 in brackets)

• Profit before tax: £40.2m, (£41.0m)
• Net tangible assets per share: 410.8p, up 12% (366.7p)
• Net tangible assets per share including off balance sheet deferred tax asset: 434.7p, up 10% (394.6p)
• Total dividends paid and proposed: 10.0p, up 33% (2007: 7.5p)
• Additional special dividend per share: 4.0p (nil)
• Investment income: £50.0m (2007: £46.8m), representing a yield on average invested assets of 5.1% (5.2%)
• Estimated loss from Hurricanes Gustav and Ike net of reinsurance and reinstatement premiums reduced from $45m to under $40m

Matthew Fosh, chief executive, said: "Novae has had a successful 2008 with profit before tax close to the record result reported in 2007 in spite of the much more difficult underwriting and investment environment. The Group's net loss from Hurricanes Gustav and Ike has reduced and we have made an exceptional investment return. Rates are set to harden across many areas of the market in response to capital erosion and a series of high profile losses and we relish the opportunities that the next few years will present."

John Hastings-Bass, chairman, said: “Against the backdrop of poor results from many underwriting businesses and some catastrophic results from the rest of the financial sector, Novae steered a steady course between the Scylla and Charybdis of a low point in the underwriting cycle and the Sirens of finance houses offering seemingly attractive ‘innovative’ investment products.”

Other highlights:

• Novae's 2008 Lloyd’s capacity of £360.0m is 2.3% and ranks Novae fourteenth in terms of Lloyd's 2008 managed capacity. In many of those areas where Novae has chosen to operate its market share is 10% or more.
• Addition during 2008 of bloodstock and fleet motor units. Further diversification expected.
• Commercial lines insurance continues to be an intermediated marketplace, and Novae is committed to working with brokers for the foreseeable future. Continuing consolidation in the broking industry makes it essential to avoid over-dependence on any one intermediary
• Around two thirds of gross written premium is expected to be liability and one third from property classes.
• Limit inwards reinsurance to aviation and property catastrophe business.
• Expects to cede around a quarter of its premium income to reinsurers. Will reduce reinsurance spend to around 20% of inwards income
• Around half premium income will be written in sterling, with some 40% in US dollars and the balance across a range of other currencies.

Future

Novae predicted: “The group is currently anticipating that rates will increase across its account as a whole by some 5-10% in 2009, with considerable divergence between segments. Property and Aviation & Marine are expected to see more significant increases, with Specialty broadly in line with the whole and Liability flat after taking claims inflation into account.

“Claims experience is likely to deteriorate in 2009. Claims on liability business have historically increased during periods of economic recession. Large individual property losses have become more frequent and peak losses from US windstorms or other natural disasters are inherently unpredictable.”