Novae’s Q3 brings a smile

Novae Group announced GWP for the first nine months of the year was up 15.1% with average rate increases of 9%.

Nine months highlights (2008 in brackets)

• Group gross written premium £308.2m, up 15.1% (£267.8m)
• £262.1m or 85% (£222.9m or83%) written by the Lloyd's business
• £46.1m or 15% by NICL (£45.8m or 17%)
• Rate increases averaged 9% (-7%)
• Investment return £26.5m (£32.0m).
• A more benign claims experience
• Bank facilities increased and extended

Group chief executive Matthew Fosh said: "If the steady improvements enjoyed during the third quarter are maintained for the remainder of the year, we can counter the disappointments of the first half.

“We are in positive rating territory at a time when the Group's income base is building and diversifying."

Underwriting

Novae said: “In classes such as credit and financial institutions actual or perceived vulnerability to claims experience is driving up rates strongly.

“The effect of 2008 windstorm losses continues to underpin rate strength in property reinsurance and certain direct classes such as US property. This is also true of energy business although rate increases are partially offset by the reduced amount of cover being bought.

“Aviation reinsurance business, much of which renews in the fourth quarter, looks as though it will benefit from rate increases given significant loss activity earlier in 2009.

Refusal to recognise claims

“For other classes the market's refusal to recognise potential claims experience and low interest rates is holding back rating. This is particularly true of liability classes other than financial institutions business.

“Across the Group as a whole underwriting experience has improved in the third quarter compared to the position at the interim stage.

Novae's aviation reinsurance unit has experienced a more normal level of claims activity and measures taken within the CIFS, the UK trade credit business, are delivering positive results.

Novae Re

On 20 August 2009 Novae announced the formation of Novae Re, a new unit underwriting an international and predominantly reinsurance account.

Nine senior underwriters have so far been appointed in London and Zurich. The new unit is expected to commence underwriting in time to participate in the 1 January 2010 renewal season.

Novae Re expects to write between £90-100m of gross written premium in 2010.

The cost of Novae Re is not expected to exceed £3m in 2009 and £7m in 2010.

Outlook

Novae said it expects to benefit from the increasing diversification of its underwriting portfolio, particularly following the formation of Novae Re. This diversification of the business, together with a higher loss tolerance (measured in terms of Willingness To Lose), will improve return on equity assuming normal loss experience.