Novae reassures investors as shares crash amid profit warning

Llody’s insurer Novae’s shares crashed 5.63% today as it fired off a profit warning due to the changes in the discount rate.

The discount rate has been cut to an unprecedented -0.75%, meaning insurers face a £5bn bill. 

Novae said today it expects to cope with the rate change through lower profits and reserve releases. Novae said it would also consider its final dividend carefully in light of the news.

The hit to its underwriting would be £55m. 

However, in a move to reassure investors, Novae stressed its reserves were strong enough to cope with the impact. 

“Given the Company’s strong reserving position, it holds sufficient reserve margin to absorb this impact. 

“We expect that the effect of the rate change will be met in part through release of reserve margin and in part through a reduction in profits for 2016.

“The board will also be considering the impact of this announcement when assessing the appropriateness of a final dividend.  Given the non-recurring nature of this charge the Company expects no significant impact on the profitability of our ongoing business.”

Shore capital analyst Eamonn Flanagan said he had been expecting £60m profits. He recommended a ‘buy’ to investors, but said the threat to the final dividend would raise eyebrows.

“Novae’s exposure emanates from its motor reinsurance book, with the comments on the final dividend likely to disconcert the market, especially given its reference to the profitability of the ongoing business being unchanged,” he said.